Partner as Managing Agent

[ritchie77]

I am completing my tax return for this financial year and was considering whether I should include a managing agent fee for my partner. The circumstances are as follows:

Property was purchased close by so we decided my partner would do this one - she wanted to organise some renovations and check tenants herself etc.

Property is in my name (high income) with my partner being a low income earner.

I have now calculated income for year and was considering reducing it by x% (average of the area) which would therefore give me (higher income) a tax reduction of $y and my partner (low income) a taxable income of $y. As I said I considered doing this as she is managing the property anyway so might as well save some tax also - it might only be $1 or $2 k but hey - its better in our pocket that the ATO's if it is legal

I have looked up on the ATO website and asked a few questions and understand this scenario is quite common and legal.

My main query is do you have to be a registerd RE agent or have qualifications? This will be the only property she will manage but we wanted her to do it as she deals with the tradies, tenants, council etc on my behalf as I am working through day.

SHe has an ABN from her old job (hair/dressing) therefore does it matter what the ABN was previously used for if she is a sole trader? If she declares the income and I claim an expense I dont see any problem if the managing agency agreement is documented and she keeps some sort of list of works/asks done throughout the year - she will obviously be better than a lot of agents because she knows the IP is ours for our financial future.

Any thoughts on this or others do the same advise if they are registered/have an ABN for other business/services?

Thanks in advance

Rich

 

[Aaron_C]

If she has an ABN you can pay her in a personal capacity for property services. Although technically under the Estate Agents Act only a licensed real estate agent can manage a property on behalf of someone else.

 

[ritchie77]

Thanks for that - are you/others aware on ATO's view of the REA act and if it is enforceable or arethey just happy both parties apply income/expenses correctly.... This is the only one she is doing and as I said she is doing most of the stuff anyways due to location so might as well reduce our tax!

 

[Aaron_C]

Well enforcing the Estate Agents Act isn't the jurisdiction of the ATO...so they won't know (or care) as long as you pay the correct amount withholding tax, GST etc. So you can probably get away with it. If you want to be safe call her services something else on an invoice, such as 'consultant services' to make it less obvious.

 

[Dazz]

only a licensed real estate agent can manage a property on behalf of someone else.

To lawfully charge someone to manage a property, they must hold a tri-ennial certificate. These aren't easy to come by.

A fully qualified Property Manager holding a property managers Real Estate Institute qualification is not qualified or authorised to charge anything. They operate "under" the tri-ennial cert. holder's authority....usually the Principal of the business. The old guy / gal sitting up the back controlling the show.

Obviously, a marriage certificate doesn't qualify either to charge anything.....but if you upset her, it does qualify to take the lot.

 

[marg4000]

Keep it modest and you should be OK.

For years I claimed $400 to manage an IP for hubby. He claimed the deduction, I included it in my tax return.

We were never audited so I can't say if it would have stood up to scrutiny by ATO officials, but our accountant was OK with it.
Marg

 

[Aaron_C]

Keep it modest and you should be OK.

For years I claimed $400 to manage an IP for hubby. He claimed the deduction, I included it in my tax return.

We were never audited so I can't say if it would have stood up to scrutiny by ATO officials, but our accountant was OK with it.
Marg

Like I said - the ATO doesn't care about the legality of who holds/doesn't hold a REA licence. They are only concerned with whether you have paid the correct amount of tax.

 

[Emo21]

well if your paying your spouse for managing the property can you pay yourself. scenario is IP in my name and i am in a full time job but also have a registered ABN for previous casual work. can i pay my self to manage my own property.
i would consider putting it in my wifes name but already lodged her return.do you think its worth lodging a amendment to her returns.

 

[Dazz]

Like I said - the ATO doesn't care about the legality of who holds/doesn't hold a REA licence.

Not sure I've ever read a sentence that has the terms 'ATO' and "doesn't care about the legality' in it. One can only claim a tax deduction for expenses that have been lawfully incurred. I'm sure an accountant will be along any tick of the clock.

They are only concerned with whether you have paid the correct amount of tax.

....and the correct amount of tax is dictated, determined and has its lawful basis in whether the fees paid to manage the property have been paid by and collected lawfully.

This is to prevent silly things like this ;

well if your paying your spouse for managing the property can you pay yourself.

 

[Aaron_C]

Not sure I've ever read a sentence that has the terms 'ATO' and "doesn't care about the legality' in it. One can only claim a tax deduction for expenses that have been lawfully incurred. I'm sure an accountant will be along any tick of the clock.

Given that the Estate Agents Act is a State-based legislation, and income tax is a federal based legislation, it is not their jurisdiction to look into the nitty-gritty of the legality of a property management arrangement. It is different if the whole arrangement is a 'sham' (i.e. the wife didn't even do any property management but still got paid). That becomes an income tax issue, not a property management one.

 

[ritchie77]

Thanks guys - will look into the REA act and other certificate mentioned (Tri-enne). Given she does actually do the paper work, chasing up, dealing with tenant etc I beleive a deduction of say 5-7% of the rental income is satisfactory and in line with what other agents are charging in the area.

in regards to the ABN, does it matter this was previously used for hairdressing? She has had little use for it of late but I would like to tmake this claim to legally reduce tax - just not sure how the ATO would react? I suppose as some say you wont know until/if you get audited...

 

[Aaron_C]

It doesn't matter what her previous ABN is used for if she wants to start a property management business. However, it does mean that her deductions etc must be related to her new business and not related to her old business.

 

[damacc]

It doesn't matter what the ABN was used for previously. If she does go back to casual hairdressing then have separate bookwork. I agree with Aaron C about terming it "Consulting Services" rather than Property Management. Consulting Services gives a more wider scope of work that can be done which could also include getting your stuff ready for your tax return, etc.

 

[Terryw]

This AAT case may be of interest:

Brown and Commissioner of Taxation [2010] AATA 829
http://www.austlii.edu.au/au/cases/cth/AATA/2010/829.html

Allan Brown (“the taxpayer”) was the owner of a rental property. He says he employed his wife to assist with the paperwork and other issues associated with the property during the 2006-2007 year of income. He claimed a deduction in respect of the wages he paid her and in respect of a large contribution to her superannuation. The Commissioner disallowed the deductions in the objection decision. The matter has now come before the Tribunal.