For the accounting brains . . .

[Harriet]

Hello,

Some questions for all the accounting brains here!

My mother would like to move closer to me and my family, but she can't quite afford it, and doesn't want a mortgage.

We've had this idea that maybe we could purchase her place together. She would contribute funds from the sale of her current home, and I would borrow to cover the shortfall.

My questions are:

1) If my mother and I own the property together, does it have to be 50/50? Or can shared ownership be split any way? (I would be looking at owning maybe 15% of it, if that is a doable split.)

2) If it is my mother's PPOR, is there any way that my percentage can be legally considered an investment - so that I can negatively gear the interest paid on my loan, as well as my "share" of the expenses?

3) If the answer to #2 is no . . . do you have any other clever ideas for ways I can help out my mum, yet still have my contribution be considered an investment for taxation purposes?

Thanks in advance!

H.

 

[Ergophobia]

I have been pondering this same situation with my mum.

1/ if you set up the title as tenants in common the % split can be anything you want
http://www.aussielegal.com.au/informationoutline~nocache~1~SubTopicDetailsID~724.htm

2/ I dont think so, because its not an income producing asset... and she cant rent from herself.

3/ buy an IP together (or simply rent her place out) and build a granny flat for her at your place. Assuming she is on the age pension, its best to be classified as a non home owner and the cost of the granny flat is exempt if it costs less than 135k http://www.centrelink.gov.au/internet/internet.nsf/payments/chartab.htm#extra

 

[Terryw]

My questions are:

1) If my mother and I own the property together, does it have to be 50/50? Or can shared ownership be split any way? (I would be looking at owning maybe 15% of it, if that is a doable split.)

2) If it is my mother's PPOR, is there any way that my percentage can be legally considered an investment - so that I can negatively gear the interest paid on my loan, as well as my "share" of the expenses?

3) If the answer to #2 is no . . . do you have any other clever ideas for ways I can help out my mum, yet still have my contribution be considered an investment for taxation purposes?

Thanks in advance!

H.

1. Any split could be done.
2. yes. You could rent your share to her and possibly claim a percentage of costs if you charge her market rent
3. You could just lend her any of the short fall. Draw up a loan agrement too. This way she is 100% owner and gets the full PPOR CGT and land tax exemptions.

Make sure you mum gets a valid will done up too. Also is your mum's existing house pre CGT asset? ie purchased prior to 21 Sep 1985? If so you may want to encourage her to keep it.

 

[BMan]

if she paid you a portion of the rent (15% since thats your split) then would you be able to claim the deductions?

 

[Harriet]

Thanks for the suggestions, folks.

Terryw . . . my mum is in her mid 60, and not in the least bit savvy about financial matters. She wants no debt and no complications. She just wants to be near me, her only kid (AW!)

I will look further into this idea of having me pay 15% market rent. Then, hopefully, I could claim 15% of all the expenses associated with the place. Would I be able to claim 100% of the interest I pay, however?

I will also look into the granny flat idea.

Cheers.

 

[Terryw]

Thanks for the suggestions, folks.

Terryw . . . my mum is in her mid 60, and not in the least bit savvy about financial matters. She wants no debt and no complications. She just wants to be near me, her only kid (AW!)

I will look further into this idea of having me pay 15% market rent. Then, hopefully, I could claim 15% of all the expenses associated with the place. Would I be able to claim 100% of the interest I pay, however?

I will also look into the granny flat idea.

Cheers.

If your mum don't like debt do you realise she must go on any loan you get if she is an owner of the property? You could only claim 100% of the interest if you owned 100% of the property.

 

[Harriet]

If your mum don't like debt do you realise she must go on any loan you get if she is an owner of the property? You could only claim 100% of the interest if you owned 100% of the property.

So even though she would be putting in her 85% with no loan, she would still need to be on MY loan document?

Could I at least claim 15% of the interest paid on the loan? That would be better than nothing!

 

[Terryw]

So even though she would be putting in her 85% with no loan, she would still need to be on MY loan document?

Could I at least claim 15% of the interest paid on the loan? That would be better than nothing!

yes.

possibly

 

[Harriet]

OK, thanks.

Ultimately, I just want to do whatever makes her happy, but not go broke in the meantime.

 

[marg4000]

Could I at least claim 15% of the interest paid on the loan? That would be better than nothing!

You will need good accounting advice.

From what you say, as a part owner your mum cannot rent her own house (her name is on the title deed).

Otherwise two friends (partners?) could buy a house together and each rent the other's half and claim all deductions.
Marg

 

[BMan]

this isnt my expertise by along way but

if you can claim a deduction then if your loan is only 15% of the total amount and you were getting 15% of the rent you should be able to claim 100% of your loan not 15%?

if you owned the whole lot and got 15% rent then 15% of the loan would be deductible
500k loan (receiving 15% of market rent)
15% of 500k loan = 75k
75K is deductible right?

so if you had a 15% share = 75k loan and received 15% rent wouldnt that equate to the whole loan being tax deductible ?
and should be able to claim 15% of any expenses

this wouldnt be any different to a group of people buying a shared house and you having a 15% share in it you would get 15% rent and claim 15% of the expense
you should be able to claim 100% of your 15% share?

 

[Terryw]

this isnt my expertise by along way but

if you can claim a deduction then if your loan is only 15% of the total amount and you were getting 15% of the rent you should be able to claim 100% of your loan not 15%?

if you owned the whole lot and got 15% rent then 15% of the loan would be deductible
500k loan (receiving 15% of market rent)
15% of 500k loan = 75k
75K is deductible right?

so if you had a 15% share = 75k loan and received 15% rent wouldnt that equate to the whole loan being tax deductible ?
and should be able to claim 15% of any expenses

this wouldnt be any different to a group of people buying a shared house and you having a 15% share in it you would get 15% rent and claim 15% of the expense
you should be able to claim 100% of your 15% share?

The trouble is that no bank could lend based on a portion of a propety, they would need to take the whole property as security and have both names or all names on the title would need to go on the loan too.

It could be possible for the son to take out a loan in his name only with mum giving a guarantee. Not sure how this would effect deductibility because it is generally determined by names on the title not names on the loan.

 

[Aaron_C]

The trouble is that no bank could lend based on a portion of a propety, they would need to take the whole property as security and have both names or all names on the title would need to go on the loan too.

Except in the case of family pledge loans. But I guess you are right because even in those cases the entire property has to be mortgaged to the bank with a limited guarantee rather than an all-moneys clause.

 

[Kristine..]

If your mum don't like debt do you realise she must go on any loan you get if she is an owner of the property? You could only claim 100% of the interest if you owned 100% of the property.

Hey Terry

No (Mum does not have to be on the loan), for CBA Property Share option, but yes, Mum would have to allow the property to be used as security for Harriet's loan - Mum would provide a Security Guarantee but not a Servicing Guarantee

Harriet is then only responsible for her own loan and Mum has no connection with the loan

Harriet can then claim her share of the expenses of the property but Harriet should seek financial advice because as an only child it is likely that she would eventually inherit the property and she should make sure that any claim as an 'investment property' now does not become a tax problem later when she inherits the 85% ownership of the property which was her Mother's PPOR

Short sighted claiming of expenses can sometimes turn into a taxation rod for our own backs later!

Cheers

 

[Terryw]

Hey Terry

No (Mum does not have to be on the loan), for CBA Property Share option, but yes, Mum would have to allow the property to be used as security for Harriet's loan - Mum would provide a Security Guarantee but not a Servicing Guarantee

Harriet is then only responsible for her own loan and Mum has no connection with the loan

Harriet can then claim her share of the expenses of the property but Harriet should seek financial advice because as an only child it is likely that she would eventually inherit the property and she should make sure that any claim as an 'investment property' now does not become a tax problem later when she inherits the 85% ownership of the property which was her Mother's PPOR

Short sighted claiming of expenses can sometimes turn into a taxation rod for our own backs later!

Cheers

Thanks Kristine. I wasn't aware of this product, but would think this could probably done with most banks?? It seems mum would need to guarantee the Harriet's loan.

Not sure how it would work with the general income tax deductions with both names on title.

Also good point about the CGT implications on inheriting the property. Not sure there would be issues here however as Herriet would, presumably, inherit the mum's portion of the property which would be the portion that was a main residence which would be exempt from CGT. Harriet would then own the whole property - but the cost base would be different for the different portions I would imagine.

I think the easiest and cleanest solution would be to lend mum the 15% - if possible

 

[Jake D]

Just a couple of thoughts. Probably illegal, but maybe a starting place for some new ideas.

1. Your mum sells her house and "gives" you the proceeds. You then use it to buy a house, fully in your name, with a loan to the value of 15%. She rents off you at full market price, you hand back 85% of her rent under the table and get full tax deductions.
Could get messy if you have brothers/sisters who could get jealous of the "cash gift"

2. Same idea as above, but instead of using proceeds of your mum's sale as a deposit, put it all in an offset account and tell your mum it's all hers if she no longer needs to live in the house you're buying for her.

 

[Terryw]

Just a couple of thoughts. Probably illegal, but maybe a starting place for some new ideas.

1. Your mum sells her house and "gives" you the proceeds. You then use it to buy a house, fully in your name, with a loan to the value of 15%. She rents off you at full market price, you hand back 85% of her rent under the table and get full tax deductions.
Could get messy if you have brothers/sisters who could get jealous of the "cash gift"

2. Same idea as above, but instead of using proceeds of your mum's sale as a deposit, put it all in an offset account and tell your mum it's all hers if she no longer needs to live in the house you're buying for her.

Good thinking and nothing illegal there.

However: Potential issues could be:
1. No longer mum's main residence so will be subject to CGT and possibly land tax.
2. If low loan then the maret rent would mean it would be positively geared meaning more tax would be payable where it otherwise may not.
3. Asset protection could be an issue.
4. If mum will be getting centrelink payments then there could be issues with such a gift.

One possible benefit may be that mum could possibly qualify for rental assistance from centrelink.

 

[Ergophobia]

What if it was an interest free loan, not a gift

The money you pay back is the principal so not income.

 

[BMan]

if you were going to do that id atleast change it around so you didnt pay all but 15% off
pay bare minimum put any extra into the offset account to compensate


also sometimes its better to not try and get every deduction than to try and get them all

it might actually cost you more claiming full rent than if you only claimed the percentage