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Gifting a Foreign property to a parent

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Newbie

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Replies 5

Hi,

What are the tax implications in Australia if an Australian resident for tax purposes would like to gift a rental property located in India to a parent (non Australian resident for tax purposes), so that the parent could utilise the rental income from the property for sustenance?

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Most helpful response

Taxicorn

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There would be Capital Gains due to the fact that you are seen to be disposing of the property when gifting it.

 

Wouldn't it be better to just gift them the rental income?

 

It all depends on the calculations of how much capital gains it would be.

 

The cost base would be the cost when you became an Australian Resident for tax purposes.

 

 

5 REPLIES 5
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Most helpful response

Taxicorn

Replies 0

There would be Capital Gains due to the fact that you are seen to be disposing of the property when gifting it.

 

Wouldn't it be better to just gift them the rental income?

 

It all depends on the calculations of how much capital gains it would be.

 

The cost base would be the cost when you became an Australian Resident for tax purposes.

 

 

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Community Manager

Replies 3

Hi @MusicDom,


Thanks for your question.


As @macfanboy advised it would be a CGT event.


Check out our page on Capital gains tax.


Thanks


KylieS

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Newbie

Replies 2

Appreciate your responses. Does this mean that:

1) If the rental returns are gifted, one does not need to pay tax on the rental returns in Australia?

2) How is CGT to be calculated, as in India the transactions and expenses are not as structured as in Australia? For eg:

a) There is no concept of interim valuation or back dated valuation of the property. There is no concept of a valuation agent and hence an official back dated valuation cannot be obtained.

b) Tradesmen in India usually do not provide a bill or a receipt or a tax invoice when any work / renovations / maintenance is carried out on the property.

3) Morover if we use the indexation method of calculation of CGT (which is also generally used in India), can we use the Cost Index Inflation (CII) values of India as the property is situated there?

 

Appreciate overall guidance on the above.

 

 

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Community Support

Replies 1

Hi @MusicDom

 

Welcome to our Community always great to see a second post as well.

 

While the overseas property remains in your name as an Australian Resident for tax purposes, you will need to report all income and expenses in your tax return which in turn will incur a tax obligation for you. If after that you give a gift of money to your parents as long as it follows the genuine intent of gift giving then it will have no further tax obligations for the recipients. For a general discussion on this see Taxation Ruling TR 1999/17 Example 9.

 

Ultimately though if you are seeking to transfer property to family members. See Transferring real estate to family or friends for direction.

 
If establishing a valuation is your issue though be it what the property was worth when you built it or what it is worth now. See Who may undertake a market valuation? You will find valuations are quite flexible and its more about the process rather than who conducts it. Most real estate agents are in the position to assist with this too.

 

As to the method of the CGT calculation you can use whatever method gives you the best result. However for claiming expenses in a rental property setting you will need to keep receipts to substantiate claims as required. See Supporting documentation.

 

As to which CPI to use I have escalated this to get clarification. In the meantime see The indexation method of calculating your capital gain. I trust this will prove helpful.

 

We will be back in touch shortly about CPI.
Kind regards
MarkA

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Community Manager

Replies 0

Hi @MusicDom,

 

Thanks for your patience.

 

You would use the Australian CPI in your calculations.

 

Thanks

 

KylieS