Need to show an income for an IP to -ve gear?

[nmilne]

Hi all - I'm looking at sticking some money in to help my brother out buying the family house back interstate to let M&D get some funds to move into a smaller unit. He can cover about 70% of the value of the house, so I was looking at just getting a small loan for ~ $100k to cover the difference and to take a 30% interest in the property.

My question around the tax implications is this though - do I need to show an income for the property for it to be considered as an investment? ie. consider the revenue generating part of the investment to be purely in its capital growth? Or do I need to get my brother to pay a certain amount of "rent" (which I'd end up giving back to him) and if is there any sort of reasonableness test for this, or could it be something nominal?

Thanks!

 

[The Y-man]

Couple of things come to mind:

How will your "small loan" be secured? The bank may want the whole house as security for a home loan....

You can only claim expenses on an "income producing" instrument - so yes, rent does need to be paid at market rates and must be at "arm's length".

In his case however, you have the added complications of the fact that it is the ppor of one of the owners......

Cheers,

The Y-man

 

[yo yo ma]

You can only claim expenses on an "income producing" instrument - so yes, rent does need to be paid at market rates and must be at "arm's length".

And if it is claimed as a rental property (an investment), you will be liable for Capital Gains Tax when it is sold...

 

[buzzlightyear]

A general comment about prediction about property.....Are they ever right? Who goes back to check them? Professionals or not, I am getting tired of these so-called experts making predictions but no-one ever really knowing whether they have a history of getting any of their predictions close to right.

End of rant....Going to smash some concrete now..

 

[The Y-man]

A general comment about prediction about property.....

Buzz, was this in the right thread?

Cheers,

The Y-man

 

[nmilne]

Thanks for the replies thus far - I'm about 2 years away from paying off my own ppor here in melbourne so should be able to secure 100k loan against my own property (which I have about 300k equity in). I've been focussed on just paying off my own ppor so far, so am just starting to look into investing, and this is something of a half hearted dabble to help some family members along.

Changing tack slightly, I'm assuming then that there are laws/rulings that would stop something along the lines of my brother and myself buying a retirement unit for my folks, exchanging roughly equivalent amounts of rent and then treating each property as an investment rather than a ppor as well? (as in the folks live in a rented unit & pay rent to bro/myself and can offset their rental income against costs, and likewise my brother lives in the house rented from the folks and treats the unit as an investment with the associated negative gearing benefits)

 

[yo yo ma]

Changing tack slightly, I'm assuming then that there are laws/rulings that would stop something along the lines of my brother and myself buying a retirement unit for my folks, exchanging roughly equivalent amounts of rent and then treating each property as an investment rather than a ppor as well? (as in the folks live in a rented unit & pay rent to bro/myself and can offset their rental income against costs, and likewise my brother lives in the house rented from the folks and treats the unit as an investment with the associated negative gearing benefits)

You are allowed to buy a unit & rent it to a relative. See p8 of the Rental Properties 2007 booklet. You should rent it at market rate or you may not be able to claim a full deduction of expenses. An example is given there. Again, you will also have to pay CGT on the place when it is sold.
Steve