In this blog we discuss everything you need to know about RELATED PARTY TRANSFERS. This is part one of a two part series.
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Hi everybody - George Sourris, Empire Legal.
Today's topic: Related Party Transfer - Part One.
So what is a related party transfer?
Let's start with the definition. So when a property's changing hands, we're looking for either the higher of:
1. the sale price; OR
2. the market value of the unencumbered property (what it would sell for on the open market with no mortgage).
The Office of State Revenue will collect the transfer duty payable at the true market value. So basically - there will be no duty discounts just because you're related to somebody when a property is being transferred.
Example:
Let's do a real life example. My parents have a $1,000,000 investment property on the Gold Coast, and because they're such wonderful people, they're going to let me buy it for $850,000 - so $150,000 discount. So, good news, I'm getting the property for $150,000 off.
However, if we look at that definition we just spoke about, the sale price is actually lower than the true market value. The true market value is $1,000,000. So the Office of State Revenue shouldn't miss out on the duty payable, the true duty, which is the transfer duty on $1,000,000, not $850,000. Make sense?
The transaction with the related parties is not at arm's length because we are involving some parties that are related by blood, marriage, or in a commercial setting. They know each other.
If you want to dig a bit deeper into it, this is all governed by a Public Ruling that was released by the Office of State Revenue. Now, a Public Ruling is effectively something that the Commissioner puts out to the world. You can see it on the Office of State Revenue's website. The link is here. The Public Ruling overrides everything prior to, and it's effectively the source of truth of how we assess these sorts of transactions.
Definition of a related party:
The definition lives in Section 61 of the Duties Act, for all of those who like to read the Duties Act in their spare time. There are three different sections.
We've got an individual, so we're talking somebody that is related - for example, siblings, spouse, parents, etc.
Then we've got companies. So, shareholders - anyone where there's a relationship there between business partners or family members within the corporation, that could be defined as related.
And trusts - we are talking about companies and trusts - if the beneficiary has a relationship with a family member there, we've got a related party.
But you can read up on the exact definitions by googling it or looking up the Duties Act.
Requirements to self-assess:
There are two ways for us as self assessors on behalf of the Office of State Revenue. As the solicitors, we are obliged to either get: a registered valuation OR three comparative sales.
Now the registered valuation must be from a registered valuer. Alternatively, we can ask a real estate agent to get three comparative sales arranged in the area. They have to be true comparatives, and we're going to be looking at the highest of those three values when we do our transfer duty assessment.
For both options, the evidence must be held for five years.
On this $1,000,000 example, if it was $950,000, $980,000 and $1.2 million as comparatives, we are paying stamps on $1.2 million (the highest of the three comparatives).
Also, on the comparative sales report must be the real property description - so the lot and plan, the residential address, and any improvements made to the property.
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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.