Property changes hands between related parties constantly. A parent transfers a half share to a child. A rental property moves into a family trust. A self-managed super fund buys the premises the family business trades from. The conveyancing is usually straightforward. The number written on the transfer is where people get into difficulty, because the price related parties agree on is not the number a revenue office or the ATO works from. They work from market value, and market value has to be evidenced by someone independent of both sides.

What makes a transfer a related party transfer

The common cases are familiar. Transfers between family members. Property moving into or out of a trust the transferor controls. A transfer to a company the transferor owns. Dealings between a self-managed super fund and its members or their relatives. What matters is not the relationship on its own but whether the parties dealt at arm’s length in that transaction, meaning each side acted independently and in its own interest, the way strangers would have.

Related parties can deal at arm’s length. But a connected transaction attracts scrutiny by default, and the burden of showing the terms were commercial sits with the parties, not the assessor. An independent valuation is the ordinary way that burden is discharged.

Transfer duty follows value, not the price paid

In Queensland, transfer duty on a dutiable transaction is generally assessed on the higher of the consideration and the unencumbered value of the property. Transferring a house to a relative for a nominal sum does not produce a nominal duty bill. It produces duty on what the house is worth, and a request from the Queensland Revenue Office for evidence of that worth.

Where the parties are related, that office will want evidence of value rather than an assertion. A signed report from a registered valuer is the strongest form that evidence takes. Narrow exemptions and concessions exist for particular family arrangements, and where one genuinely applies it applies on its own terms. Otherwise, duty follows value.

Capital gains tax and market value substitution

A transfer is a disposal even when no money moves. Where the parties did not deal at arm’s length, or where the property is given rather than sold, the tax law substitutes market value for whatever figure the parties nominated. In broad terms it runs both ways. The person transferring is treated as having received market value, and the person acquiring is generally treated as having paid it, which sets the cost base they carry into their own eventual sale.

A friendly price therefore does not shrink the tax. It leaves a figure on the file that has to be justified later, sometimes years later, when the records are thin. Establishing value at the time, while the sales evidence is current and the property can be inspected as it then stood, costs a fraction of rebuilding it under review. How the rules apply to a given transaction is a question for the taxpayer’s accountant. The valuer supplies the value the adviser works with.

Transfers involving a self-managed super fund

Superannuation law is stricter again. A fund is generally prohibited from acquiring assets from a related party at all, subject to a short list of exceptions. The exception that matters for property is business real property, meaning land and buildings used wholly and exclusively in one or more businesses, and it is available only where the fund acquires at market value. Residential property owned by a member or a member’s relative cannot simply be moved into the fund.

Wherever the fund sits in a transaction, acquiring premises, transferring an asset out to a member, or leasing to a related tenant, the terms have to be what unrelated parties would have agreed. A fund that acquires below market value, or accepts less than commercial rent, risks income from the arrangement being taxed at a penalty rate, and the auditor will raise it. Independent evidence of value at the date of the dealing closes that off.

What a nominal price actually achieves

The friendly number is usually well intended. A parent helping a child into a house, a business owner tidying up a structure. It rarely does what it is meant to do. Duty is assessed on value regardless, and the capital gains position is worked out on value regardless. What the nominal price changes is the paper trail, by putting a figure on the record that nobody can support.

The consequences run further than people expect. Someone who takes property on at an undocumented value carries that uncertainty into their own sale years later. Transfers at an undervalue can be looked at again in bankruptcy, in family law matters and in disputes between beneficiaries, and the absence of contemporaneous evidence is what makes those examinations long and expensive.

The evidence that holds up

Revenue offices, the ATO and fund auditors look for the same qualities, whatever the transaction:

  • Independence. The valuer has no interest in the property, the parties or the outcome. A figure supplied by a party, or by an adviser acting for one, is not independent evidence.
  • Professional standing. In Queensland that means a valuer registered with the Valuers Registration Board of Queensland. Registration is what puts weight behind the signature.
  • The right date. The assessment is made as at the date that governs the transaction, not the date it was convenient to inspect. A figure carried over from months earlier is not evidence of value on the day.
  • Stated method and evidence. The comparable sales relied on, the adjustments made to them, and the reasoning that connects them to the concluded figure, set out so a reviewer can follow the path.
  • An inspection. A valuer who has walked through the property can speak to its condition and its constraints. That is what separates a valuation from an estimate.

Lesser evidence is accepted case by case. An agent appraisal citing comparable sales may pass; it still carries no professional liability. An online estimate is a statistical model that has never seen the property. The statutory land valuation on a rates notice measures land for rating and land tax purposes at a fixed annual date, not the market value of the property with a house on it.

Related party transfers are simple to get right and expensive to get wrong, and the difference is generally one document obtained before settlement rather than after a question arrives. If a transfer between family members, into a trust or company, or involving a fund is being contemplated, call the practice on 07 5550 4055 and talk through what evidence it will need.