Helping Kids Can Land Parents with a Tax Bill

A father purchased a townhouse at Mount Coolum in Queensland for his adult son to reside in. To guard against his son “acting unwisely”, the father had the property transferred to himself and his son as joint tenants.

The son Justin lived in the townhouse until 2007, when he moved into a house at Coolum Beach. The Coolum Beach property was purchased by the son and his mother, and was financed through a loan from Westpac secured by a mortgage over each of the properties.

In September 2007, the townhouse was sold and the proceeds of sale were used to reduce the debt to Westpac. At the same time, Westpac released the father from a guarantee he had given.

This story was recently published in an article in Smart Company.  Sounds like a good father, looking after his young son.  But the suprising bad news came with the Administrative Appeals Tribunal (AAT) declared the father liable for capital gains tax on 50% of the value of the Mt Coolum property.

Although the son had lived in the property, and was therefore not liable for CGT, the father had not lived there so was liable.  The father had not received any funds from the sale of the property as these we reinvested in the new home.  But from the tax department’s perspective, as half owner, he was considered to have received half the proceeds.

The warning here:  be careful about helping children with property.  Make sure you review things with our accountant before jumping into any transactions.

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