Deductible?

[stevec]

Opinions sought for the following:

I have been offered by my sister and husband to purchase half of their townhouse development, 2 x townhouses, one title only, cannot be sold separately.

I would like to buy it (or invest in it) and move into it as my ppor for a while. I already have 3 ips and renting atm but would like my own place as such.

They have offered the possibilty of going into a jv agreement or something along those lines. One option is that we have a loan agreement drawn up between ourselves and I effectively pay off the loan they owe the bank from building the townhouses.

This option means that I don't have to go through the process of applying for a loan formally and can invest in these townhouses as such and be a half owner while living there.

From a tax point of view if this was to happen and I effectively pay off their loan through a loan agreement as stated above and they rent the other townhouse out and they receive the rental income from it, would the interest on my part be tax deductible?

I sort of see it as myself being an investor in the project, providing the cashflow to service the debt to build the development. I will live in one for a while, eventually moving out (longer term view) and renting this out as well.

If the interest would be deductible obviously I would pay IO only and not reduce the debt.

I know all the problems associated with family issues, what if one wants to sell etc, but just would like to know from the tax experts here if the loan I have with my sister/husband would be deductible.

I haven't seeked professional advice as yet, just want to see what peoples thoughts are.

Thanks,

Steve.

 

[smartbuy]

Don't do it! It's fraught with danger and the tax issues are complicated. Clean-cut transactions are ultimately the best.

 

[The Y-man]

From a tax point of view if this was to happen and I effectively pay off their loan through a loan agreement as stated above and they rent the other townhouse out and they receive the rental income from it, would the interest on my part be tax deductible?

I sort of see it as myself being an investor in the project, providing the cashflow to service the debt to build the development. I will live in one for a while, eventually moving out (longer term view) and renting this out as well.
.

If I have understood this correctly - NO.

You can only claim expenses on an asset that provides income to the person (or entity). If you are not receiving the rent, and it is purely "capital gain", I believe you can not claim expenses (interest and other).

Cheers,

The Y-man

 

[Mry]

From a tax point of view if this was to happen and I effectively pay off their loan through a loan agreement as stated above and they rent the other townhouse out and they receive the rental income from it, would the interest on my part be tax deductible?

Tough one, but the answer is no.

The test for determining deductibility is whether you are earning an income. You will not be earning assessable income as you will not be receiving the rent. At best, the interest will be capitalized against the property for its eventual sale. At worst, the tax office would deny the interest as it would be earning someone else's income and should be apportioned thusly. If there is some confusion, they would look closely at your intent in the project. And remember, the interest would be apportioned to your share of the rented property.

Your situation cries out for professional advice. Seek professional advice and treat this scheme as a clean investment scheme for your personal financial benefit. Don't try to be a 'good' family member or things will get really messy.