Make own home an investment?

[kweh]

I was talking to a friend today who mentioned that he leases part of his home to his cousin and get tax benefits at the end of the year. Is this possible? What are the requirements?

 

[alexlee]

I was talking to a friend today who mentioned that he leases part of his home to his cousin and get tax benefits at the end of the year. Is this possible? What are the requirements?

Yes, you can because you're then using your PPOR for income producing purposes, so you can deduct part of the interest paid on your home loan.

HOWEVER there are drawbacks: the capital gains tax exemption on your home might be affected.

Be very careful and make sure you know what you're in for before doing this.
Alex

 

[kweh]

Thank you alex,

One more question, can it be leased to direct family members whose name is not in the property contract. Or does it have to be leased to an unrelated individual.

 

[yo yo ma]

He has to make sure he correctly apportions the part of the property used for rental; this should be done on a floor area basis. As Alex pointed out, he may now have to pay CGT on part of the profits when he sells. Here is an example from the ATO using your home to produce income.

See p7 of the ATO Rental Properties 2007 booklet for more info.
Steve

 

[yo yo ma]

One more question, can it be leased to direct family members whose name is not in the property contract. Or does it have to be leased to an unrelated individual.

It can be rented to anyone but should be done at commercial (market) rent or full deductions may not apply; see p8 of Rental Properties 2007.

 

[skater]

One way around that is you could charge board, or lodging. Check with your accountant, but this way you can receive some income without affecting you CGT liability. Of course, you won't be able to deduct expenses then either.

 

[tubs]

But if he can now claim a % of costs, he will also have to declare the rental income as well. And these would probably cancel each other out.

 

[skater]

But if he can now claim a % of costs, he will also have to declare the rental income as well. And these would probably cancel each other out.

Yes, I believe that is correct. You can either declare the income & deduct a % of the costs OR you can charge board/lodgings, where you don't get to deduct any of the costs.

Best to see an accountant to see what you can/can't do & what is appropriate for your situation.

 

[Mry]

In the end, the loss of the PPOR exemption is in 99% of cases going to cost you a lot more than the tax breaks that you receive.