Selling the House to Your Kids for a Family Price

It is one of the most common conversations in Australian families, and it almost never involves an adviser. The investment unit is worth about $700,000. Your daughter and her husband can't get into the market. So you agree to sell it to them for $400,000 — roughly what you paid, enough to clear your own costs, and a genuine leg-up for them.

Everyone is happy. The conveyancer draws the contract for $400,000.

Then three separate government agencies look at the transaction and, for three different reasons, none of them uses the number on the contract.

This is general information, not personal financial advice. It is not tax advice and it is not legal advice — this transaction needs a registered tax agent and a solicitor before it happens, and this article is about why.

The tax office substitutes market value

The rule is called market value substitution, and it applies where both of these are true: what you received was more or less than the market value of the property, and you and the new owner were not dealing with each other at arm's length (ATO, https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/transferring-property-to-family-or-friends, as at August 2026).

Where it applies, your capital proceeds are taken to be the market value of the property, not what you were actually paid. Give something away for nothing at all and you are still taken to have received its market value at the time of the CGT event (https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/calculating-your-cgt/capital-proceeds-from-disposing-of-assets).

So in the example above, capital gains tax may be calculated as if you had sold for $700,000, even though $400,000 is what came into your account.

What "arm's length" actually means

This is the part families get wrong, and it is worth being precise about.

You are 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. And the law looks at both the relationship between the parties and the quality of the bargaining between them (ATO).

That second half is what catches people. "We got a proper valuation and then agreed on a fair family price" does not make the dealing arm's length — because a genuinely independent buyer would not have accepted $300,000 less than the property was worth. The discount is itself the evidence that the bargaining was not at arm's length.

Note that both limbs are required. An under-market price alone does not trigger the rule if the parties genuinely were at arm's length; it is the combination that does.

Two exceptions worth knowing

The ATO identifies exactly two exceptions to the market value substitution rule, and if either describes your situation the analysis is different and worth getting advice on specifically.

The first is a transfer to a former spouse on the breakdown of a marriage or relationship, where the rule may not apply. Our article on the family law CGT rollover covers how transfers on separation are treated. The second is a transfer to the trustee of a special disability trust for no payment, where any capital gain or capital loss can be disregarded. Our article on special disability trusts covers what those are and who they are for.

Stamp duty generally looks at market value too

For transfers between related parties, duty is generally assessed on the market value of the property rather than the price stated in the contract — so the discount does not reduce the duty either.

Duty is state and territory law, and the rules, rates, thresholds and concessions all differ. This article deliberately does not describe any of them. Check with the revenue office in your own state or territory before you commit, and have your conveyancer confirm what will actually be assessed. Our article on pensioner stamp duty concessions covers the concessions that exist in the downsizing context.

Centrelink treats the discount as a gift

Here is the third one, and it is the one that surprises people most.

Services Australia may include a gift in your income and assets tests where you give away, sell or transfer an asset for less than its market value (https://www.servicesaustralia.gov.au/what-gifts-we-include-income-and-assets-tests?context=22526). The shortfall — the difference between market value and what you actually received — is the gift.

The disposal free areas are $10,000 in a single financial year and $30,000 over any rolling five financial year period (Services Australia, https://www.servicesaustralia.gov.au/how-much-you-can-gift?context=22526, as at August 2026). The DSS Social Security Guide describes these as two separate tests applied to disposals: whether the amount disposed of exceeds $10,000 in a single financial year, and whether it exceeds $30,000 for the current and previous four financial years in aggregate (https://guides.dss.gov.au/social-security-guide/4/1/10).

Only the amount in excess of those free areas is assessable. That excess becomes a deprived asset, and deprived assets "are assessed for 5 years from the date of the relevant disposal" (DSS Guide 4.1.10).

Assessed how? In both tests. The excess counts in the assets test as though you still owned it, and deeming is applied to include it in the income test as well. Our article on gifting rules and deprivation covers the mechanics, and our article on deeming rates covers the income side.

So in the illustration: $300,000 of value has been given away. A small amount falls within the free areas. The rest is treated as an asset you still hold — for five years — even though it is gone.

One thing worth knowing if this has already happened. The DSS Guide's own example deals with a gift that is subsequently returned: where an excess gift of money is given back to the pensioner, "the deprived amount assessed in respect of the gift ceases to be assessable from the date the money is returned." That is stated about money, and unwinding a property transfer is a very different exercise with its own duty and tax consequences — but it does mean a deprivation assessment is not automatically immovable for the full five years. It is a question to put to Services Australia and to a solicitor rather than to assume either way.

The three together

Take the illustration through all three at once — round numbers chosen to show the mechanism, not a prediction of anyone's actual outcome. Capital gains tax may be calculated as though you sold for $700,000. Stamp duty may be assessed on $700,000. And Centrelink may treat roughly $300,000 as a gift, assessing most of it as a deprived asset for five years in both the assets test and the income test.

And now the part that really bites: the tax is real money, due on a real date — and the $300,000 that would have paid it was never received.

You have given away most of your liquidity, your pension has fallen because of a gift you do not think you made, and a tax bill has arrived calculated on proceeds you never saw. That combination is why this transaction needs advice before it happens rather than after.

"There's no CGT" doesn't mean "there's no problem"

This is the trap for the reader who checks one thing and stops.

If the property is your main residence, the main residence exemption may mean there is no capital gain to tax at all. Excellent — and completely irrelevant to the other two. The Centrelink deprivation still applies. The duty still applies. Nothing about the CGT exemption touches either of them.

The three systems are not coordinated, they do not consult each other, and clearing one of them tells you nothing about the other two. Our article on the main residence exemption covers when it applies and when it does not.

Worked examples

Two families, two very different exposures. Illustrative only, and not tax, legal or personal advice; the figures are round numbers chosen to show the mechanism.

Consider Margaret, 72, a part-pensioner who owns an investment unit worth about $700,000 and agrees to sell it to her daughter for $400,000. All three limbs engage. The parties are plainly not at arm's length and the price differs from market value, so capital proceeds may be taken to be $700,000 (ATO). Duty is likely to be assessed on market value, though that is a question for her state's revenue office. And the $300,000 shortfall is a gift: after the free areas of $10,000 in the year and $30,000 across five years, the great majority becomes a deprived asset assessed for five years in both tests (Services Australia; DSS 4.1.10). On these facts, obtaining a valuation and putting the numbers to a registered tax agent before the contract is drawn is generally rational — because the cash to pay the tax is precisely the cash she has agreed not to receive.

Now consider Frank and Helen, both in their late sixties, who plan to sell the family home they have always lived in to their son at a similar discount. They check the tax question, find the main residence exemption may remove the capital gain entirely, and conclude the transaction is clean. Two of the three consequences are untouched by that finding. Duty may still be assessed on market value, and Centrelink may still treat the shortfall as a gift and assess the excess as a deprived asset for five years. On these facts, checking all three regimes rather than the one with the reassuring answer is generally rational — the exemption they found is real, and it says nothing at all about the other two.

What you probably actually want

Most families doing this want one of four things, and each has a cleaner instrument than an under-market sale. None of these is a recommendation — they are alternatives worth raising with an adviser before the contract is drawn.

If you want to help them buy, selling at market value and gifting within the limits over time, or lending rather than discounting, keeps the three consequences visible and controllable; our articles on systematic gifting, on family loans and gifts, and on helping children with a home deposit cover the trade-offs between gift, loan and guarantee. If you want to keep living there, a granny flat interest has its own Centrelink treatment and is designed for exactly that — see our article on granny flat interests. If you want to secure occupancy for life, a life interest may fit better, and our article on life interests and the Age Pension covers how they are assessed. And if you want to simplify the estate early, that is often better handled in the will than by a lifetime transfer, with none of the three consequences above.

Before you sign anything

Get a real valuation. All three systems work from market value, so you need a defensible figure regardless of what the contract says — doing the transaction without one does not avoid the problem, it just means you find out the number later, from someone else.

Work out the cost base first, because you cannot calculate the deemed gain without knowing what you paid and what it cost you. For a property held since the 1980s or 1990s that is its own project; our article on reconstructing a cost base when the records are gone covers how to go about it, and why to start months early.

Ask the tax question and the Centrelink question separately — they have different answers and different advisers. Have the buyer get their own advice, since their position on duty, their own cost base going forward and their borrowing is a separate matter and not something to work out on their behalf.

And do not sign under pressure. An under-market transfer benefits the buyer and costs the seller three times over, and it is not unknown for that pressure to come from inside the family. If any part of the conversation feels difficult to say no to, our article on financial abuse and older clients is worth reading first.

The one-line version

Three agencies will ignore the price on your contract and use market value instead — so a family discount can produce a tax bill on money you never received, duty on a price nobody paid, and five years of reduced pension. Get a valuation and get advice before the contract is drawn, not after.

Sources

• ATO — Transferring property to family or friends
• ATO — Capital proceeds from disposing of assets
• Services Australia — How much you can gift
• Services Australia — Gifting
• Services Australia — What gifts we include in income and assets tests
• Services Australia — How gifting can affect your payment
• DSS Social Security Guide 4.1.1 — General provisions of deprivation
• DSS Social Security Guide 4.1.10 — Rolling 5 financial year deprivation provisions