It is illegal to rent a property to your girl/boyfriend?

I am planning to rent one of my properties to my girlfriend. Would this be legal? Might stay over night sometimes as would be normal for this sort of relationship. Any comments?
 
I rent a property to family. appropriate rent is paid in cash. Just make sure you provide receipts as proof of income.
 
Thanks for the reply Propertyunity. Is it acceptable that I charge slightly below market rent? Say, 10-15% less?
What would be the motivation? To increase your negative gearing loss? :confused:

If so, hardly worth it as it may jeopardise your claim that it's an on-market arrangement. I'd get rent appraisals from local agents, or at least a list of comparables, to justify the rental level that you set.
 
Sorry to jump on this thread but I have a similar kind of question...

I am looking at purchasing an IP that requires some cosmetic renovations, and I may choose to rent this unit to a friend. I would look to reduce the rent during renovation, and also may decide to self manage - if renting to a trusted friend - this would therefore save me property management costs. Given these 2 factors, I may rent the property out at 20-25% below market (for a period of time). The saving on property management fees as well as the reduction due to the nuisance of renovations would be my reason for doing this, but what would the ATO have to say? Who's to say what a reasonable "market" rent is for this set of circumstances?
 
I would look to reduce the rent during renovation
There is nothing wrong with that. There are often free rent periods or rent reduced periods negotiated with tenants that are disrupted by a LLs renovations.

and also may decide to self manage - if renting to a trusted friend - this would therefore save me property management costs.
That's fine but self managing and then passing the 'savings' onto the tenant is most probably not acceptable as being seen as charging market rent.

Given these 2 factors, I may rent the property out at 20-25% below market (for a period of time).
Given the 1 factor of disruption to the tenant you could conceivably do this for the period of the renovation only AND then possibly followed by an increase in the rent charged, to account for the added value arising from the renovation.

Who's to say what a reasonable "market" rent is for this set of circumstances?
Who's to say: generally a 'reasonable' person. Would a resonable person accept a tenancy period of reduced rent for the period of the reno at a 25% discount - probably. Would a resonable person as a tenant expect to pay less because they are renting privately - perhaps?? Would a tenant then expect to be charged a higher rent, after the lease expired, due to property improvements - yes.
 
Thanks for the advice. If I was to rent a property out at lets say 10% under market rent on an ongoing basis, how do I account for that at tax return time? What proof do I provide?
 
I just spoke to my accountant and he believes that the ATO wont really care if you rent something out for 10-20% under market rent. They are really watching for people that rent something out for a major 50% discount for example.

How are the ATO going to prove that you are under renting your particular property for 10-20% less...it is too subjective.
 
If I was to rent a property out at lets say 10% under market rent on an ongoing basis, how do I account for that at tax return time? What proof do I provide?

As grizzly said 10% is too subjective to worry too much about. At 25% I think they could make a case against you.
 
As grizzly said 10% is too subjective to worry too much about. At 25% I think they could make a case against you.

Not only that, some PM's are not on the ball and some landlords don't keep track of the prices, especially with long term tenants, so many properties are regularly rented out for under market rent. There are still some 3 bedders around here rented @ $170pw, when the market rent would be more like $250.
 
At a technical level; if you want to claim all of the deductions, you should probably declare the correct amount of rent, too. Otherwise, part of your expenditure is not being used to receive assessable income and therefore, is not deductible.

In practical terms, the tax office may not necessarily be aware of the market rent for any one given property. However;

- they will know the rental income received on comparable properties in that area,
- they will know the average yields in that area compared to purchase price, and,
- they will know the purchase price of your property and others like it.

They will also, for example, compare your income received with the interest paid on your loan. The tax office have a ridiculously wide scope of data-matching information and mathematical algorithms available; to know what looks right, and what doesn't. Both internal and external information is used to assess each return, and in most cases they will be confident in making a decision about whether your situation is reasonable and at arms-length.
 
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