What are the taxation implications of building a new home at a large discount, in return for allowing the builder to rent it back for use as a display home for 18 months at $1 per week?
I've been told I can't claim the normal full tax deductions as it is an intentionally loss-making venture even though I thought I could argue that I was planning to make a large capital gain and hence (maybe) pay large CGT.
There is a couple of possiblilties:-
The ATO Rental Properites 2011 guide states that rent can be "associated payments in the form of goods and services and that you will need to work out the monetary value of these". So my discount is sort of like a goods and service ie. I'm getting the builders time for free or heavily discounted. If I could determine what the monetary value of this was (eg. ask him to provide me with the full cost and the discounted cost?), I could divide it by 18 months to determine the rent I would need to declare. Therefore I'd be able to claim all the normal deductions.
Furthermore, someone has suggested that this discount could be added onto my cost base for capital gains tax purposes but I find this hard to believe.
Another possibility is to determine what the market value of the rent (ask a real estate agent?) would be, and declare this as the "monetary value" of the discount I received.
I can't see any guidance to this situation in "Taxation Ruling IT 2167 - Income Tax: rental properties - non-economic rental...". It talks about renting a property at a discount to relatives, holiday homes, not at arms length transations etc. But I can't see anything relevant to my situation.
Has anyone had any experience in this area of renting back a property at a huge discount, in exchange for obtaining a lower purchase cost, and if so, what were the income tax implcations?
I've been told I can't claim the normal full tax deductions as it is an intentionally loss-making venture even though I thought I could argue that I was planning to make a large capital gain and hence (maybe) pay large CGT.
There is a couple of possiblilties:-
The ATO Rental Properites 2011 guide states that rent can be "associated payments in the form of goods and services and that you will need to work out the monetary value of these". So my discount is sort of like a goods and service ie. I'm getting the builders time for free or heavily discounted. If I could determine what the monetary value of this was (eg. ask him to provide me with the full cost and the discounted cost?), I could divide it by 18 months to determine the rent I would need to declare. Therefore I'd be able to claim all the normal deductions.
Furthermore, someone has suggested that this discount could be added onto my cost base for capital gains tax purposes but I find this hard to believe.
Another possibility is to determine what the market value of the rent (ask a real estate agent?) would be, and declare this as the "monetary value" of the discount I received.
I can't see any guidance to this situation in "Taxation Ruling IT 2167 - Income Tax: rental properties - non-economic rental...". It talks about renting a property at a discount to relatives, holiday homes, not at arms length transations etc. But I can't see anything relevant to my situation.
Has anyone had any experience in this area of renting back a property at a huge discount, in exchange for obtaining a lower purchase cost, and if so, what were the income tax implcations?