PPOR - When do you control rather than own?

[Andy Pandy]

I have seen numerous threads saying your PPOR is not an IP and you can't claim the costs of a PPOR on your return.

My question is, at what point does a PPOR become controlled and not owned and therefore have the characteristics of an IP?

Lets look at a few examples:

1. PPOR owned in individuals name - PPOR
2. PPOR owned in a trust controlled by occupier - PPOR
3. PPOR owned by a trust with a corporate trustee - ?

I don't know the answer but I suspect there will be a few tests which determine when the PPOR you control has the same characteristics as an IP.

What do you think?

Andy P

 

[Monopoly]

I think you've got me totally baffled!!!

You're playing an unnecessary game of semantics.

PPOR is exactly what the acronmyn implies, a primary place of residence. It is where you live, hang your hat, call "home". It is not intended to generate revenue, but rather to shelter you and your family, and as such is, and should be exempt from asset tests and consequently subject to non-deductible tax claims.

As for the "test" that's easy, the minute you generate revenue (even from a home-business out of the smallest broom closet) it takes on the characteristics of an IP.

Unless the rules have changed, and I"m missing something ???

 

[JoshyBoi]

I don't know the answer but I suspect there will be a few tests which determine when the PPOR you control has the same characteristics as an IP.

As monopoly said...if your PPOR is generating revenue then it is an IP and no longer a PPOR...the terms are mutually exclusive...

 

[jaycee]

I think Andy's asking if he can rent his own house and through the right structure, it becomes for tax purposes an investment property.
I don't know.

 

[Andy Pandy]

Let me simplify my point....

If I live in a house that I 'own' at what point will the ATO allow me to claim the costs as deductions?

For example...

The house is owned in a trust with a corporate trustee,
Myself and my family occupy the house
Rent is paid via an independent agent at market rent,
If I am a director of the Trustee what will the ATO's view be?
Is it an IP even though I live there?

At some point, if I keep tweaking it will become an IP, just trying to work out where is the line.

AndyP

 

[joanmc]

Just don't forget that if you make it an IP you will lose the CGT exemption. even if you are still the one living in it.

 

[The Y-man]

Let me simplify my point....

If I live in a house that I 'own' at what point will the ATO allow me to claim the costs as deductions?

For example...

The house is owned in a trust with a corporate trustee,
Myself and my family occupy the house
Rent is paid via an independent agent at market rent,
If I am a director of the Trustee what will the ATO's view be?
Is it an IP even though I live there?

At some point, if I keep tweaking it will become an IP, just trying to work out where is the line.

AndyP

AndyP,

A couple of things as I understand it (from when we looked at this):

1. whether you have a corporate trustee or a human one won't make any difference for the purposes of this discussion (i.e. whether you can claim deductions etc)

2. The trust needs to be seen by the ATO to be in the business of renting out properties. While there is no hard an fast number, it is easier to justify to the ATO if you have say 5+ propoerties, one of which happens to be lived in by you

3. A (DF) Trust can't pass on losses to the beneficiaries. This means that in essence your properties need to run CF neutral or CF positive (i.e. the rent you pay the trust must exceed all costs such as interest, maintenance etc). This means that while the costs of the property you live in is tax deductible, you can only deduct against income the trust makes (not you!). To make (what I think is) your plan viable, the trust needs and additional income source that it would have had to distribute to its beneficiaries

4. Depending on the state the property is in, you may pay more land tax

5. You will lose the CGT free status on sale (tax free money on profits!!)

6. If you are changing the ownership of an existing PPOR, you may be up for stamp duty ect

Not saying you can't do it - we just found it not to be financially beneficial in our case. (for us, it was much easier to pay down PPOR debt and redraw to invest so that the interest became tax deductible - so called "debt recycling")



We also looked at the scenario of where we are employed by the trust in the course of doing trust business. However, you are likely to find that FBT will make this prohibitive.


Cheers,

The Y-man

p.s. we also explored options of making the premise fully furnished, with depreciation on the furniture etc too - but in the end, we couldn't get the trust to make enough money to make it worthwhile

 

[MattR]

Taxation Ruling TR 2002/18 deals with circumstances that the ATO thinks are contrived.

 

[wassie]

What do you think?

At the end of the day the only thing that matters is what the ATO thinks.

The anti-avoidance provisions in Part IVA I suspect would be hard to get around.