Inheritance - Family home split with siblings land tax & rent Q's

SkMed on 16/01/2020 - 13:10

Hi all,

My father passed away in late 2018 and we're now finally settling the will.

The family home has been left to myself and older 3 siblings, so an equal 4 way split between us. We've decided to keep the family home. All 3 of my siblings are living there (its a farm/vineyard with two dwellings). Even if they weren't there I'd still opt to keep it.

Q1: Our fathers solicitor who has been helping has said I may have to pay land tax, but not my 3 siblings as they reside at the property as their place of residence. Does this sound correct? I've tried looking into how exactly it works, exemptions and how to pay it but I can't make heads or tails of it.

(FYI, This is my only ownership in any property.)

Second question is rent. My siblings have all agreed to pay weekly rent to me (their decision) as I don't reside at the property. They plan to just do bank transfer's to me weekly however I'm wondering if this might come back to bite me legally/tax wise? We have no formal agreements etc. Any advice on how I should handle this? Should I instead just ask them to pay cash to avoid all the hassles & problems that might come with having them pay rent into my account? The rent I get from them will just be going towards paying my own rent in the city.

Thanks,

Financial

Comments

  • HighAndDry on 16/01/2020 - 13:29
    +10

    1. Get a solicitor to go over different options of how to deal with the ppty. For example, it might be wiser for the other three siblings to just buy out your share now.

    2. Talk to an accountant about land tax. There are thresholds and special provisions dealing with jointly owned land.

    3. If you do receive rent from the ppty, you technically should be reporting that as part of your income.

    Back to 1. I suggest that because that may well remove the issues about land tax and reporting income completely, and doing so now (when probating the will) can have CGT and stamp duty benefits that you won't get if you decide to change the ownership structure later on.

    TALK TO LEGAL AND TAX PROFESSIONALS

    • SkMed on 16/01/2020 - 14:00
      +1

      Thanks for the suggestions. I have no interest in selling and forms have already been signed. We haven't had the property assessed yet but since its large, with a Vineyard and two dwellings (one being very large and brand new) I'm pretty certain my siblings wont have enough in the bank to buy me out anyway… Also i'm fine financially so don't have a need for the $$ and don't plan on buying any time soon (if ever).

      We will be leasing out the vineyard in the future when(if) the drought ever breaks which will draw some extra income, then we've agreed to re-asses in 10 years time to see what we all want to do.

      I guess I'll need to get myself an accountant lol

      • HighAndDry on 16/01/2020 - 14:03
        +2

        Hm. Talk to an accountant, they might be able to finangle some primary production exemption or concessions for your land tax, but you'll probably have to look around to find someone familiar with your rather unusual circumstances.

        Best way might be to talk to friends or neighbours who also own vineyards for recommendations to an accountant they use and know how that specifically works in the system.

      • arkie0 on 16/01/2020 - 14:25
        +1

        | I'm pretty certain my siblings wont have enough in the bank to buy me out

        You can give them an loan, maybe interest free. They are paying you weekly anyway.

        • RockyRaccoon on 16/01/2020 - 14:37
          +3

          Ideally that makes sense, in the future dealing with 3 other owners can be a nightmare, family friends doesnt make much difference, then you get caught up with their spouses who have different ideas again, and then if one splits from another further complications….

    • MrBear on 17/01/2020 - 13:36
      +1

      If you do receive rent from the ppty, you technically should be reporting that as part of your income.

      And you may have to pay capital gains tax on the property if you sell it because it may now be considered an investment property.

      Also, are your siblings earning money from the vineyard/farm that was inherited? Because, now part of that should be yours too.

  • Typical16-bitEnjoyer on 16/01/2020 - 13:33
    +2

    I've tried looking into how exactly it works

    This is your solicitors job. If they can't determine the tax applicable, nor explain it to you, take the file to someone else.

    I'm wondering if this might come back to bite me legally/tax wise

    Yes potentially. Again, solicitors job to explain this to you.

    OzBargain is not the place to obtain specific complex advice for your specific position.

    • SkMed on 16/01/2020 - 14:05

      Well it isn't my solicitor, she's my fathers solicitor and located about 200km from me, so my sibling who live closer are handling most of the details and formalities. They can pass Q's back and fourth via email, but that takes time and $$ each time an email is exchanged. I'd need to find a local solicitor for myself for any advice I suppose.

      • Typical16-bitEnjoyer on 16/01/2020 - 14:27
        +1

        If the solicitor is handling the probate/admin then several of your questions are their responsibility due to you being a beneficiary.

        Obtaining your own legal advice is of course a good idea if in doubt / unsatisfied.

        • SkMed on 16/01/2020 - 14:37

          It's not that i'm unsatisfied, just doesn't seem practical due to the geographical limitations etc. Thanks!

        • HighAndDry on 16/01/2020 - 14:56
          +1

          Responsibility of the solicitor acting in the probate of the will rarely extends to land and income tax implications from the beneficiaries' future plans for the assets, as opposed to the tax implications of the distribution of property pursuant to the will.

  • Porker on 16/01/2020 - 13:36
    +2

    Sorry to hear of your family loss - hope everyone is going okay.

    If the home is owned 4 ways and it is not your Principle Place of Residence (PPR), then from what I understand, you do have to pay land tax. The only exemption to the this tax is generally where you claim the PPR - basically the home you're living and registered at.

    If family want to pay you money via bank transfer, then that's okay. Just don't call it 'rent' - it could easily be paying you back for cash-money you let them borrow years ago.

    But are they paying you that money in place of paying for their portion of the living expenses? - if it's a case that you're paying for the bills and they're just paying you back, then it's not really 'rent' as such.

  • Seraphin7 on 16/01/2020 - 13:58

    Each state will have different arrangements, but based on NSW, see this link that basically suggests land tax will be payable in your situation, subject to the application of the tax thresholds.

    From a rent perspective, any income so derived will be treated as income and therefore taxable.

    The fact that you now own this house may prevent you from accessing the various first home buyers programs that exist (as you won't be a first home buyer).

    As others have suggested, it is always important to seek your own professional advice.

  • arkie0 on 16/01/2020 - 14:17

    Assuming you are in VIC. First read https://www.sro.vic.gov.au/pprexempt and https://www.ato.gov.au/General/Capital-gains-tax/Your-home-a…

    Is the land used for primary production?

    • SkMed on 16/01/2020 - 14:19

      Dumb Question, but what do you mean by primary production? lol

      • arkie0 on 16/01/2020 - 14:21

        https://www.sro.vic.gov.au/primary-production-land-ppl-exemp…

        Generally, land has to be used to make an income.

        • SkMed on 16/01/2020 - 14:27

          Hmmm… Well there is a Vineyard on the property, but we've not done a harvest for about 8 years now mostly due to the ongoing drought. That being said we still have about 6000 bottles of wine from production in 2007. 2008. 2009 which we will need to sell off some time soon.

          Once(if) the drought breaks and the dams fill back up we are going to look into leasing the vineyard out to another local vineyard to manage and take grapes directly.

          So not sure if that counts tbh. It's a a tricky one to answer after reading the description on that page.

          • arkie0 on 16/01/2020 - 14:30
            +1

            @SkMed: You can call the SRO and tell them your situation, they will give you free advice on whether you can apply for the exemption.

            • SkMed on 16/01/2020 - 14:34

              @arkie0: Ah cool, I might give them a call then. Thanks!

              • arkie0 on 16/01/2020 - 14:38
                +1

                @SkMed: If you can't get the exemption -

                This is very general and doesnt cover everything, get proper advice.

                Option 1: Keep the house as PPOR. You will lose any first home buyer benefits (stamp duty concessions/FHOG grant) doing this. You don't pay land tax.
                SRO - You need to live in it for at least 6 months (Just change your details with driver licence, ATO and VEC to the home, no one will know if you don't live there), after that you can be temporarily absent for 6 years. Every 6 years you need to move back in for 6 months.
                ATO - To avoid CGT when you sell, 6 year rule applies as well. Your siblings don't need to pay you rent, they can gift you money.

                Option 2: Keep the house as non PPOR.
                You keep all your first home buyer benefits for when you do buy a house.
                SRO - you pay land tax on your portion, land tax is dependent on the value. You have a 250k threshold before you have to pay land tax, so if the total land value is under 1M, you might not pay land tax anyway. The more expensive the land, the more land tax you pay. Very approx but 500k value you pay about $300, on 1.5M you pay about 5k.
                ATO - Pay CGT on your portion of the ownership when you sell. Is the money from your siblings rent (if it is negatively geated) or a cough gift (if it is positively geared)?

          • RockyRaccoon on 16/01/2020 - 14:32

            @SkMed: Look at this

            https://www.ato.gov.au/general/capital-gains-tax/deceased-es…

            As others have said, its a Minefield. 🧨

            What applies to you may not apply to your siblings and vice versa.

            Their advice might suit them but not you.

            Get your OWN finacial advisor.

            BTW you can sell you share to the others if that makes sense. You can just have them owe you the money - mortgage they pay that down (just like rent). Again this might not suit all, so you need professional advice.

            • SkMed on 16/01/2020 - 14:35
              +1

              @RockyRaccoon: Yeah, I just need to find one now. I've only ever had to use H&R Block for my taxes but they don't handle this sort of thing apparently. Guess I need to try find someone who does.

      • Typical16-bitEnjoyer on 16/01/2020 - 14:28
        +3

        Don't tumble down this never ending rabbit hole. Get professional advice :-)

        • SkMed on 16/01/2020 - 14:36
          +1

          Yeah, now finding someone reliable, local and not expensive is my next hurdle haha

          • RockyRaccoon on 16/01/2020 - 14:41

            @SkMed: Dont worry about the "expense" it will be cheap.

            Just outline what the issues are. You have a good coverage here. Ask the financial advisor if they have experience in this area before engaging them. Good luck.

            I think you are being very sensible, and check here for ideas - just dont act upon them without that professional advice, because they should look at all the circumstances 😀

  • ef on 16/01/2020 - 14:44

    For NSW:
    From my understanding the way they figure out land tax is by who is on the title as owning the land, so if you are A. They look at non-PPR owned by A and check if it is higher than the threshold. But actually A has their own threshold and A+B is another threshold.
    But if your property is large then even though A+B+C+D have their own threshold it may still be over. You can find the value of the land by looking at the council rate as that is based on land value. The value of the structures does not count, that is why many people invest in apartments.

    You can find the land value from https://www.valuergeneral.nsw.gov.au/services/lvs.htm?execut… the current threshold is $734,000.

  • tsunamisurfer on 16/01/2020 - 14:54
    +1

    Thats very generous of your siblings to pay rent.

    They own their quarters and presumably use their quarters.

    Paying rent is not necessary but will offset the land tax you have to pay.

    • SlavOz on 17/01/2020 - 23:38

      I'm all for sibling cooperation but why should they be paying him rent? He's not providing any form of value or benefit to them.

      OP is not paying land tax for them - he is paying land tax for himself. He is the only one that needs to pay it and it will entitle him to own a portion of the property.

      His siblings are not saving money, earning money, or avoiding any potential loss of money from him. Why should they pay him rent to stay at a house they legally own and has no outgoing costs (seemingly)?

      • kiitos on 18/01/2020 - 08:07

        I guess they can use space that op would otherwise be using.

        • SlavOz on 18/01/2020 - 15:29

          Perhaps. In that case, they can pay OP a pro-rata of the small space that he is entitled to. Can't imagine that would be much.

          But if OP was not planning to use the space in any way, it seems low to charge his siblings for it. Why doesn't he just sell his share of the property to them permanently?

          • kiitos on 19/01/2020 - 09:43

            @SlavOz: Op said it's two houses on the property, so op could be using half a house, which is a pretty big benefit to the other 3.

  • [Deactivated] on 17/01/2020 - 02:03

    Why does the government need to know you don't live their. You have family living their hopefully they can pass on mail plus tax free rent.

    • SkMed on 17/01/2020 - 12:21

      I believe they ask for proof that you live there, i.e. mail addressed to their, name on utilities plus a few other things. I cant change this stuff as I rent in the city and part way through processing a partner visa application with my partner, so not really an option.

      • SlavOz on 17/01/2020 - 23:31

        So, put the phone or power bill in your name and as far as the Govt is concerned, you live there. It's literally impossible for them to prove that you don't live there. It's almost like the laws are designed with a blatantly obvious wink wink.

        • SkMed on 22/01/2020 - 20:12

          Not worth the risk of jepodising me and my partners future, 4 years of hard work and about $10k for the sake of avoiding land tax.

  • kiitos on 17/01/2020 - 12:37

    Do your siblings do any work on the property?

    • SkMed on 22/01/2020 - 20:13

      Not really, I mean we all do work maintaining it, but not really beyond that.

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