Apart from the second-generation heirs who reluctantly return home to take over the family business after their careers stall, there is another group who have led a charmed life from an early age. We often see people who, before even reaching adulthood, are gifted properties by their families and treat real-world buying the way they would in a game of Monopoly.

Recently we have been getting private messages saying, “I want to buy property in Australia, but since I’m a minor, I’m not sure how it works.”

The finger we were using to transfer rent to our landlord froze mid-air.

So, can minors buy property in Australia? And what do they need to watch out for?

Let’s start with two case studies.

Two real Australian cases

1. In 2020, an 8-year-old boy named Hamdan registered as a bidder at an auction in Greenacre. Using a “slow bidding down” strategy, he successfully won the property. His father, a property developer, said his son enjoys playing Monopoly, and they treated the auction as “a fun experience”.

Because of his age, Hamdan’s father purchased the investment property on his behalf. But at settlement, Hamdan personally handed the cheque to the seller. His father said he wanted his son to take part in the bidding so he could better understand the Sydney property market.

2. In 2017, 13-year-old Akira Ellis became possibly the youngest property investor in Australia. Together with his siblings, using pocket money plus support from their parents, he acquired his first house — turning the Monopoly investing mindset of buying land, building houses and collecting rent into a real-life reality at a very young age.

Can minors in Australia just splash the cash and buy property on a whim?

Buying property in Australia as a minor means running into two major obstacles — the reasons many people hesitate and end up unable to simply gift a house to their child the way they would any other present.

First, there’s no way around tax.

Tax expert Raftery says that income generated from a property held in a minor’s name, such as rent, is taxed at the top marginal rate of 46.5%, because it counts as unearned income.

Like adult owners, minor owners can also claim council rates, strata fees, management fees and maintenance costs as tax deductions.

If the property is financed by a loan, the loan interest can also be claimed as a cost of holding the property.

This is why, in Case 1, although the 8-year-old was the registered bidder at the auction, the property was still registered in his developer father’s name.

Second, there may be no one willing to sell.

Why would someone willing to buy still end up without a seller? Although in most cases minors can sign a contract to buy property, Australian law considers minors to lack the capacity to understand certain terms. As a result, it can be very difficult to find someone willing to sell to a minor who isn’t fully bound by the contract.

For this reason, anyone entering into a contract with a minor faces greater risk. Unlike a contract with an adult, if the minor breaches the contract, the other party may struggle to enforce payment and may not be able to retain the deposit.

Beyond purchases, when a minor owner sells property, they also cannot be forced to perform the contract. To protect buyers, most states require the owner’s date of birth to be recorded on the title, so the buyer knows the seller is a minor.

On the lending side, the same contract-enforcement risk means many financial institutions are reluctant to lend to minors. In those cases, many families resolve the financing issue through a formal private loan between members (for example, between parents and child).

So in Australia, a common way of buying a property for a child is through a trust. An adult parent or guardian acts as trustee and holds the title to the property, handling the loan and related matters. Case 2 could well have been done this way.

It’s worth noting that when the property is fully transferred into the child’s name, some trusts may incur capital gains tax.

Finally

Educating children about family wealth is receiving increasing attention — we often say, teach a man to fish. If parents are set on having their children hold property, please understand the hurdles they may face, and contact NS Legal for advice.