I have had clients on several occasions ask me what happens when they buy a property for an adult child and then some years later when the child is more able to borrow money and the value of the property has increased, buys the property off the parent at the price the parent originally bought it for.

In the above case, the property is sold to the child at a figure less than the market value. The ATO will substitute the sale price with the Market Value of the property and assess the Capital Gain.

The Market Value Substitution Rule will also apply if the property is gifted to the child, and also if the the child buys the property from the parent at a substantially higher price than the Market Value.

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