Making my PPOR a sharehouse

Hi all,

I have a large house, 3 bedrooms with an upstairs rumpus room. I am thinking of moving out with 2 years and renting out 4 rooms to 4 separate people.
I then plan to move out close to the city and rent an apartment or a cheap unit.

I figure I can make more money this way as I could rent a room for about $100 each or $110. This should come close to covering the mortgage payments,

Has anyone ever tried this before?

I wish to do this without RE agent...
 
I know many people who have rented out rooms while they have been living in the property themselves, have you considered this as it would be cheaper than having to rent a unit. You will still be able to claim 3/4 of all the holding costs and 3/4 of the depreciation (and possibly your furniture).

If youre not interested in this do a search on student accomodation, there are plenty of threads which will describe the process of renting a house out by the room.

Cheers
Pablo.
 
Hi all,

I have a large house, 3 bedrooms with an upstairs rumpus room. I am thinking of moving out with 2 years and renting out 4 rooms to 4 separate people.
I then plan to move out close to the city and rent an apartment or a cheap unit.

I figure I can make more money this way as I could rent a room for about $100 each or $110. This should come close to covering the mortgage payments,

Has anyone ever tried this before?

I wish to do this without RE agent...

Rent to travellers and you can charge more.
When Rob and I went back to Melbourne last November for a couple of weeks we paid $300 week.This included "make your own breakfast".We thought we were getting a bargain.Staying at a hotel was too expensive for us.We plan on doing this when we return to live.(renting to travellers)
We were hardly ever there, as we were "tourists" and visiting family.We went to the supermarket and purchased food for our supper,as we were permitted to use the kitchen. They had a massive supply of DVDs or cable TV if we chose, when we were home.
 
I know many people who have rented out rooms while they have been living in the property themselves, have you considered this as it would be cheaper than having to rent a unit. You will still be able to claim 3/4 of all the holding costs and 3/4 of the depreciation (and possibly your furniture).
Just be wary that claiming the costs doesn't trigger a CGT liability. I have a feeling if you're still living there that it doesn't - sharing your PPOR seems to be one of the few ways to achieve negative gearing without incurring CGT - but make sure!

I own a student accommodation and it's staggering the stupid stuff some of them do (fortunately I was incredibly mature and responsible when I was 19 ;)), so I think living there yourself is a very wise idea, as you can keep an eye on what's happening, and they're less likely to "run amok" with the landlord around.
 
As Ozperp says, check out the CGT implications.

Our son is considering working from home. His accountant has advised that if he claims home office expenses then he will lose a proportion of his PPOR's CGT free status.
Marg
 
Different states, different regs - which state is the house in?

In general you need to foot the bills - so it's exciting when your tenants run a car wash on the front lawn, leave lights, heaters/aircon on 24/7 :)

We had one tenant with her window open on a cold winter night because it was "too warm" with her heater in her room going full boar...


Cheers,

The Y-man
 
Different states, different regs - which state is the house in?

In general you need to foot the bills - so it's exciting when your tenants run a car wash on the front lawn, leave lights, heaters/aircon on 24/7 :)

We had one tenant with her window open on a cold winter night because it was "too warm" with her heater in her room going full boar...


Cheers,

The Y-man

Im in Melbourne.

I currently have two people living with me, one is paying me rent.

I guess I could get two more people in and pay me rent also.

But I really want to move to another suburb because I want to be closer to the city.

I guess I could find a unit to rent for 250, share that with a second person so I am only paying 125.

But yes, it would be a worry if they ran amok in my absence.
 
I know many people who have rented out rooms while they have been living in the property themselves, have you considered this as it would be cheaper than having to rent a unit. You will still be able to claim 3/4 of all the holding costs and 3/4 of the depreciation (and possibly your furniture).

An extension to what Pablo has said, there are ways you can save money without having to move out, there are tricks also to maximise that. The thing is that a lot of people don't know is if you are leasing 3/4 of your property and claiming 3/4 on costs and depreciation, is that it will not stand up to an audit. The ATO can say "we think it's only 1/4" and from there that would be an uphill battle for you and your accountant. I have seen this happen.

Your best options are (without having to move out):

1/ Claim 100% but claim your PPOR is elsewhere (say your parent's house).

This great if you have some place else in the same city which you can claim as your PPOR and that you think the rental income exceeds the increase in property value, because if you eventually decide to sell you'll be hit with CGT.

2/ Claim nothing, pocket all the rent as non-taxable, this is fine as long as you tell your tenants that the rent being charged is not tax deductible and that you're not charging like $500 per room.

This great because you can pocket all the rent and not pay tax on that, as well as avoid being slapped with CGT when you're selling. You can only do this for one property so choose the one with the best resell value.

***

I haven't used (1) yet but plan to very soon for a property which I recently acquired, the property has far better rental potential than reselling. Plus I am putting in a lot of expensive furnishing, the loan is massive and with interest rates tipped to rise, I think (1) is my best option here.

In the past, (2) has worked great for me. My tenants at that time brought in their own furniture so there wasn't much to depreciate anyway.

Hope this helps :)
 
Yes, defrauding the ATO and your fellow taxpayer is certainly the "best option". :rolleyes:

If it's really illegal then they should put some controls around it, though I can't really think of any way they could prove where your PPOR is.

On the other hand, if it's open to scrutiny then anyone who wants to save a bit of money would do it.
 
2/ Claim nothing, pocket all the rent as non-taxable, this is fine as long as you tell your tenants that the rent being charged is not tax deductible and that you're not charging like $500 per room.

This great because you can pocket all the rent and not pay tax on that, as well as avoid being slapped with CGT when you're selling. You can only do this for one property so choose the one with the best resell value.

***

.

Hope this helps :)
What happens when one of your tenants rings up the ATO,dob in a xxxxhead line and complains about your set up,im sure they will help you out,i know a few have gone down that road and when the ATO found out they had to,sell a property very quickly just to cover the bills..willair..
 
What happens when one of your tenants rings up the ATO,dob in a xxxxhead line and complains about your set up,im sure they will help you out,i know a few have gone down that road and when the ATO found out they had to,sell a property very quickly just to cover the bills..willair..

No, #2 is legal but conditional i.e. you make your tenants agree beforehand that rent is non-tax deductible (kind of like a gift). My accountant recommended this approach.
 
Perhaps you and your accountant can share the same cell? :eek: Do you want the top bunk or the bottom? :)

There are so many legitimate ways to make money in this great country of ours, why do people want to do things like this?

There is a world of difference between; taking in a mate that pays his way for a room and contributes to the running of the household - in which case the money he pays you is not considered taxable income in your hands AND turning your home into a boarding house. Telling your tenants that the rent being charged is not tax deductible and not charging an excessive rate is irrelevant. Rent being paid by a tenant is not tax deductible no matter what you charge.
 
@Propertunity: Rent can be tax deductible, for example if a tenant moves in and it's his/hers company that pays the rent, if using example 2, that would get me into trouble so I would decline any tenants who wants to use the rent paid for tax purposes.

@Vbplease: No I don't have a link, I trust my accountant's opinion over my own. He came as highly recommended from a mate from work who gets around 9k of tax return every year ever since he found this accountant.
 
No, #2 is legal but conditional i.e. you make your tenants agree beforehand that rent is non-tax deductible (kind of like a gift). My accountant recommended this approach.
There is only your name on your tax return,so the Accountant is not left holding the can only you,as with the" I trust my accountant's opinion over my own" each to thier own i guess..willair..
 
I trust my accountant's opinion over my own. He came as highly recommended from a mate from work who gets around 9k of tax return every year ever since he found this accountant.

Suggest you do a google search on "accountant jailed" and read a few of the 752,000 results found links ;) and see if your blind faith is still justified.
 
@Vbplease: No I don't have a link, I trust my accountant's opinion over my own. He came as highly recommended from a mate from work who gets around 9k of tax return every year ever since he found this accountant.

Just because he gets $9K back doesn't mean it's legal (if this is far more than he's ever got back with other accountants and his situation hasn't really changed then I'd be wondering). A good accountant is one who gets you maximum tax saving legally! I'm not saying this guy is fraudulent (whether it be deliberate or just uneducated), but you can't rely solely on it as at the end of the day your signature is what goes on the return. Is he a registered tax agent? The ATO put out a warning recently about non registered agents promising large refunds. If you are making non legitimate claims in your tax return and the ATO do an audit you could find yourself in serious trouble. I'm not saying you are, but just be careful to rely solely on one persons advice when it sounds dodgy, as does the advice you mentioned about being able to receive rent and not return it in your tax return if the person paying it doesn't claim it (in most cases it wouldn't be deductible to them anyhow).
 
If it's really illegal then they should put some controls around it
Um, it is, and they do... they tell you what the laws are, and impose huge penalties if you're found to have lied. You sign your tax return stating that all the information is correct. Surely everybody knows that fraud is a crime, don't they? :confused:

I can also drive my car 120 km/h down suburban streets with a blood alcohol level of 0.32; nobody will physically STOP me from doing it. That doesn't make it legal. :rolleyes:

I do, however, agree with jackula that my understanding is that scenario 2 can be quite legitimate. If you're recouping expenses from fellow occupants of your PPOR, and don't claim any expenses, then there's no need to declare the "rent" (technically their "contribution to household expenses", even if they contribute generously) as income, and you retain CGT exemption, unless you're deemed to be in the accommodation business.

If this weren't the case, then every person in a share house would have to account for every cent spent on household expenses, because if you gave your housemate $20 for groceries and it turns out they only spent $17, then the housemate would have to pay tax on $3 as "profit". Of course that's not what the ATO wants or intends, so when people are sharing a home with a view to sharing expenses, the ATO stays out of it.

If, however, it looks like you're running an accommodation business, then it becomes taxable. There's no black-and-white distinction; a number of factors would be taken into account. If the income greatly exceeds the cost associated with that person's share of household expenses, you provide other services at a cost (eg laundry, meals, etc), and the "profits" constitute a substantial portion of your overall income, then it's likely that you're in an accommodation business. But if one friend or adult child lives with you and gives you $150 a week when it only costs $100 per week for them to be there (doubt it; most of them get too good a deal anyway ;)), then the ATO isn't interested in the $50 "extra"; it's a private arrangement.

There's absolutely no scenario, however, in which it's legal to lie to the ATO with an aim of receiving a tax advantage to which you're not entitled.
 
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