Do I need to have a rental aggreement?

[anniswan]

I have just inherited a property that I am going to rent out eventually, but it needs major repairs.

My son has offered to live in the house paying half the market rental so that the property is occupied whilst we are fixing the place up, I really don't want to leave it empty for fear of breakin or vandalism, and this senario suits us both, he only wants a short term rental as well.

Do I have to have a rental aggreement with him to be able to deduct the repairs as deductions on my tax?

Repairs that need to be done are leaking roof which has caused paint damage, so a room needs to be repainted.

Ceiling lights are broken and need to be replaced.

Stove needs replacing (this may be a capital cost)

Carpet is ruined and needs to be replaced.

any advice appreciated.

 

[jaycee]

I think technically, no.

Landlord's insruance might be an issue though, they appear to want a lease (which can then expire and the tenant can continue to stay without one).

If you feel you need it.

Other question is about the rent not being "market rate", the ATO dont like that aparently as you may be purposely doing it to help your son & lower your tax payments), but then again, who are they to judge your business sense ? you make the rent reasonable due to the ongoing repairs....

so I guess my short answer is I don't know.

 

[Chris75]

If you've only just inherited it, you won't be able to claim the repairs as a deduction anyway. Once the reno is finished get a depreciation schedule done.

 

[jaycee]

oh yeah, that's true... you bought what you bought, so they arent repairs to bring it back to what it was, they're improvements.

 

[coastymike]

Refer to taxation ruling IT 2167 http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT2167/NAT/ATO/00001

Your arrangement sounds less of a commercial nature and more non commercial as a benefit to a family member. Analyse the ruling pertaining to your circumstances to determine whether any income is assessable and whether any deductions would be allowed.

 

[d.one]

I'm not sure about the tax implications but another thing to consider is if your son is going to rent another property after he moves out of yours.
If he is, he can use the lease he has with you as a rental reference. Obviously having your mum as a reference isn't the best (agents usually prefer tenants with a history from other agents) but it can't hurt!!