Are you an Australian parent considering buying a home under your child’s name? This can be a smart way to plan for their future, secure financial stability, and even reduce tax burdens. In Australia, purchasing property in your child’s name is becoming more popular as parents look for ways to create generational wealth and prepare for rising property values. However, it’s essential to understand the Australian tax laws, potential capital gains implications, and legal requirements that come with this decision.

Even with initiatives such as First Home Owner Grant schemes, home ownership remains unaffordable for many. Figures from the Australian Bureau of Statistics show that Australia’s property prices have rebounded since the dark days of 2008 by a staggering 69%.

Furthermore, the International Monetary Fund reports that Australia rates as 6th in the world for the highest house price-to-income ratios. It is due to this lack of affordability that many younger prospective home buyers are asking their parents for assistance in fulfilling their home ownership dreams.

So for parents, buying a home for your children requires financial insight.

The pitfalls

Whilst parents who buy a house for their children do so with the best of intentions, there are hazards that may befall the unwary. These include:

  • Tax consequences – how the property will be treated for tax purposes depends on whether rent is charged. If the child pays rent, expenses will be tax-deductible, but capital gains tax will be payable if the property is sold.
  • Opportunity cost – many parents may not be doing themselves any favours if their own financial well-being and security is compromised by their generosity. Relying on retirement savings to purchase a property later in life could be a decision later regretted.
  • Government benefits – if the property is owned by the parents, both the asset and any income will be included when calculating eligibility for Centrelink entitlements. Alternatively, should the property be placed in the name of the child, it will be considered a gift, meaning that the amount over the gifting limit will be deemed for up to five years. This can affect the level of benefits the parents might receive.

Alternative options

It’s not all doom and gloom though. There are ways for parents to assist their children in buying a home and enter the property market which in turn, can also help to deliver valuable life lessons. These include:

  • Gifting a deposit – instead of buying the whole property, gifting the deposit can often be sufficient to help offspring obtain finance, with the child taking responsibility for loan repayments. Furthermore, this option can address Centrelink concerns, and lessen the impact on the parents’ financial security.
  • Acting as guarantor on a loan – this involves using the parents’ assets as security for all or part of their child’s home loan.
  • Buying the property together – this arrangement generally involves parents providing a deposit, with the ongoing costs of the property being split between the parents and the child.

Put it in writing

There is a range of legal issues to be considered before entering into these arrangements. The rights and responsibilities of each party should be clearly and formally documented and address key decisions. These include, but are not limited to,

  • who is responsible for ongoing maintenance and costs on the property;
  • what to do if either party wishes to terminate the arrangement;
  • what happens if the child cannot meet repayments;
  • how the property will be held when/if the child marries/divorces; and
  • what happens to the property when the parents pass away.

Financial Impact on You

Buying a home for your child involves significant costs, from the down payment to ongoing expenses like mortgage and maintenance. It’s a major financial decision that can affect your savings and retirement plans. However, it’s also an investment that may appreciate, offering long-term benefits and stability for your child. So it is essential it aligns with both the your own and child’s financial futures.

Owning your home has long been considered the Australian dream, but the changing property market is helping to ensure that it remains just that for your children. Helping out your kids might seem like a good idea, but it is important that professional advice is sought first. Give me a call on 07 3162 1449 for an obligation-free chat or send me a message using the form below. I will be happy to answer what the financial implication will be and help you explore the available options to ensure that you get the solution that best suits your family’s circumstances.

    This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.