Own Property a Tax Deduction

From: Rae B


Hi all,

Just a quick question which I am having difficulties finding the answers for.

I recently bought an IP and had it rented out for a couple of months prior to moving in to renovate it.

I currently rent out half the house to a friend. This is our baptism into buying and renovating for profit. We are going to go into the IP renovating business next year, so are using this place to see how much stuff we can do ourselves.

My question is: Can I claim deductions for a portion of the house which is rented, and if so, what percentage? Also, is there any writings on doing this?

Your help is appreciated.

Rae : )
 
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Reply: 1
From: Dale Gatherum-Goss


Hi Rae!

Congrats on the purchase.

You will declare this property on your income tax return and in doing so, you show the income that you've earned and a percentage of the expenses incurred in the same percentage as the property available for use by the tenant.

That is, if the tenant has 1 bedroom of 2 and use of the remainder of the property then you would claim 1/2 of all the expenses.

I hope that this helps.

Dale
 
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Reply: 2
From: Glenn Mott


Further to this question Dale, should Rae's tenant move out and Rae occupy the property herself, how long would she have to stay before the whole property would be considered her Principal Place of Residence?

Glenn
 
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Reply: 2.1
From: Jas




> From: "Glenn Mott" <glenn_mott@hotmail.com>
>
> Further to this question Dale, should Rae's tenant move out and Rae
occupy
> the property herself, how long would she have to stay before the whole
> property would be considered her Principal Place of Residence?

Hey Glenn

It still is his PPOR, even now. It's just that 1/2 of it is incoming
earning (and CGT attracting). If the tenant goes, it's straight back to
no CGT

Jas


To paraphrase Charles Mackay - By the vile arts of stock-jobbers!
 
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Reply: 2.1.1.1
From: Daniel Brazdil


In reference to the CGT, what happens if the tenant moves out completely and the owner then lives there a further couple of years for arguments sake. Does this then fall under the ruling that allows people to use their PPOR as a IP for a period of no more than 6 years without attracting CGT?

Daniel
 
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Reply: 2.1.1.1.1
From: Dale Gatherum-Goss


Hi Daniel

It is possible for the owner to claim that the house was always their PPOR and therefore not subject to CGT. This is so regardless of whether the tenant was there or not.

Does this help?

Dale
 
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Reply: 2.1.1.1.1.1
From: Mark Frearson


Hello All (+ in particular Dale who seems to be answering the questions on this topic),

Please bear with me as I'm very new to this. As I understand what has been discussed in this topic, if you purchase a premises as an owner occupier(lets say a two bedroom unit for ease of explanation), and you rent one bedroom out (rent, board or whatever) you can declare your unit as being half for investment purposes and therefore claim half the related tax and depreciation breaks the unit (and pay CGT on half the profit if sold). Is that correct? Am I right in assuming this includes half the interest payments on the loan?

If that is all correct I'm not quite clear what happens if the second room then becomes vacant. Say you can't find a suitable tenant/flatmate . Does the unit remain for the purposes of tax assessment etc half owner occupied and half investment forever. So in other words is the second bedroom treated as a vacant investment bedroom so to speak for the life of your ownership?

Or can you only treat the half of the unit as an investment for the period it is occupied by a tenant? If this is the case the CGT calculations would be very complicated wouldn't they.

Sorry it's so long.

Mark.
 
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Reply: 2.1.1.1.1.2
From: Jas


On 4/2/02 5:30:00 PM, Dale Gatherum-Goss wrote:
>It is possible for the owner
>to claim that the house was
>always their PPOR and
>therefore not subject to CGT.
>This is so regardless of
>whether the tenant was there
>or not.

Hang on... My accountant told me because I was using and claiming a home office, part of my home was income producing and therefore subject to CGT. Now you say that income producing in PPOR doesn't attract CGT???? Please clarify???

Jas



To paraphrase Charles Mackay – By the vile arts of stock-jobbers!
 
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Reply: 2.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Mark!

"if you purchase a premises as an owner occupier(lets say a two bedroom unit for ease of explanation), and you rent one
bedroom out (rent, board or whatever) you can declare your unit as being half for
investment purposes and therefore claim half the related tax and depreciation breaks the unit."

Yes, this is correct. Your own unit, or home, will be shown on your tax return as being an investment property if you have a boarder or tenant.

"(and pay CGT on half the profit if sold).
Is that correct?"

Sort of. As your PPOR, it is exempt from CGT even if you receive an income from the property in rent.

"Am I right in assuming this includes half
the interest payments on the loan?"

Yes, you are.

"If that is all correct I'm not quite clear what happens if the second room then becomes
vacant. Say you can't find a suitable tenant/flatmate . Does the unit remain for the purposes of tax assessment etc half owner occupied and half investment forever. So in other words is the second bedroom treated as a vacant investment bedroom so to speak for the life of your ownership?"

You have control of this situation. So, if you can prove that whilst the 2nd bedroom was vacant you were actively looking for a tenant, then, the share of the expenses can remain as a tax deduction. However, if you cannot prove that you were actively looking for a tenant, then, I would not try to claim these things as a tax deduction.

"Or can you only treat the half of the unit as an investment for the period it is occupied by a tenant? If this is the case the CGT calculations would be very complicated wouldn't they."

I hope that I've answered this already. Yes, CGT calculations can be quite messy and complicated, but, they're not that hard when you know the rules.

"Sorry it's so long."

Don't be silly, it is important to get your mind around some of these issues and I'm glad you asked.

Have fun!

Dale
 
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Reply: 2.1.1.1.1.2.1
From: Dale Gatherum-Goss


Hiya Jas!

I'm sorry if I've caused some confusion. As you know, the tax rules are never simple and very much open to interpretation . . .

As I understand the rules, your home is your PPOR and therefore exempt from CGT.

Yes, at face value, if you rent out your home, it is no longer eligible for this exemption, but, the circumstances that we have discussed are actually no different to the 6 year exemption discussed previously which does allow an income producing property (your PPOR) to be exempt from CGT.

As far as I know, there is very little useful information (such as case law, appropriate legislation or even rulings) to clarify the law on this subject.

As always, this forum is fine to gather information, but, PLEASE!!! seek further clarification from your own legal and accounting advisers.
 
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Reply: 2.1.1.1.1.2.1.1
From: Daniel Brazdil


Dale thankyou for your response, you have finally answered a question that has been plaguing me for some time. No doubt my accountant will have to pull his hair out about the 6year rule.
 
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Reply: 2.1.1.1.1.2.1.1.1
From: Rae B


Thanks for all your valuable information.

Just on a side note in keeping with the topic:

I am deploying to Timor for 6 months with the Army and my friend is going to continue renting my house. Does this now mean that I can claim the property as 100% IP for the period I am away? (No increase in rent).

Thanks again.

Rae : )
 
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Reply: 2.1.1.1.1.2.1.1.1.1
From: Dale Gatherum-Goss


Hi Rae!

Yes, it does. As always, keep good records of everything including dates where you effective move out and the property is only used by the tenant.

Good luck, have fun and come home safely

Dale
 
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Reply: 2.1.1.1.1.2.1.1.1.1.1
From: Lan Diep


Hi Dale

If it is the case where we are renting out to friends/family, how do we document the rent received, should we issue a receipt - would that satisfy the tax office?

Thanks
Lan
 
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Reply: 2.1.1.1.1.2.1.2
From: Owen .


So all I have to do is advertise my spare room and I can claim half the costs of my PPOR? Interesting how I can never quite find the right person to move in though...

I'm going to keep that one in mind for the future.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 2.1.1.1.1.2.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Lan

No, you don't need to issue receipts, just keep good records of your own.

Bye the way, the tax office will assess you on the market value of the rent when friends and relatives are involved, regardless of the rent actually received. Therefore, I would keep documents showing the actual market rent as I mentioned in one of my earlier posts.

Have fun

Dale
 
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Reply: 2.1.1.1.1.2.1.2.1
From: Dale Gatherum-Goss


Hi Owen

Be careful, the courts are not stupid and will look at the facts before them. Use the law where you can, but, be clever about it.

Have fun

Dale
 
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