If you sell or give away any real estate to your family or friends, you may need to find out its market value.
Real estate includes houses, units, apartments, flats, holiday houses, vacant blocks of land, rental properties and hobby farms.
You can choose to:
- obtain a valuation from a professional valuer, or
- work out the market value yourself using reasonably objective and supportable data, such as the price paid for very similar property that was sold at the same time in the same location.
Selling or gifting real estate is a capital gains tax event (CGT event). Your liability for capital gains tax arises when a CGT event happens to your property.
For most CGT events, your capital gain or capital loss is the difference between your capital proceeds (what you receive when you dispose of the property) and the cost base (your costs of ownership of the property).
However, if you receive nothing in exchange for your property (for example, if you give it away as a gift) you are taken to have received the market value of the property at the time of the CGT event.
You may also be taken to have received the market value if:
- what you actually received (your capital proceeds) is more or less than the market value of the property
- you and the new owner were not dealing with each other at arm's length in connection with the event, such as where property is transferred between family members.
You are said to be dealing at arm's length with someone if each party acts independently and neither party exercises influence or control over the other in connection with the transaction. The law looks at not only the relationship between the parties, but also the quality of the bargaining between them.
In these cases, the market value of the property on the day of the transfer replaces what you actually received for it.
Example
Dan is delighted to find out that his son and daughter-in-law, Chris and Maria, are expecting their first child. He realises the one-bedroom flat Chris and Maria are renting is not going to be big enough once the baby comes, and the money they have been saving towards a deposit on a house is not nearly enough. The lease on the rental property Dan owns is due for renewal and he only owes $120,000 on the mortgage. Dan makes Chris and Maria an offer to sell them his rental property for the balance owing on the mortgage. Chris and Maria accept his offer and purchase the property for $120,000.
Dan obtains a market valuation from a professional valuer. It shows the value of the property at the time of transfer was $250,000.
Despite Dan selling the property for less than market value to a family member, the $250,000 market value is his capital proceeds when calculating his capital gain or capital loss.
If you acquired the property you have given away or sold before 20 September 1985, capital gains tax does not generally apply.
If you acquired the property after 20 September 1985, you may be entitled to a full or partial exemption from capital gains tax if the property was your main residence for all or part of the period you owned it. The capital gains tax Property exemption tool can help you decide whether you can claim the main residence exemption.
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If you transferred real estate to your former spouse on the breakdown of your marriage or relationship, the rules above may not apply - see Marriage or relationship breakdown and transferring of assets.
If you transfer real estate to the trustee of a Special Disability Trust for no consideration, any capital gain or capital loss is disregarded
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For an overview of capital gains tax, see Introduction to capital gains tax.
To learn more about particular aspects of real property transactions, see:
You may also wish to use our capital gains tax Property exemption tool.
For help applying this to your own situation, phone 13 28 61.
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Last Modified: Thursday, 28 June 2012