Renting part of PPOR

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From: Kippy :)


Hi peoples,

Just a few questions re renting part of your PPOR.

1) If you rent say 2 bedrooms out of three can you simply claim 2/3rds of normal IP deductions ie interest,depreciations etc?

2)If not then is it figured out on an area basis? 2 bedrooms are actually 5/9ths of the total bedroom area so you can claim 5/9ths of normal deductions?

and last but not least
3)I presume that this will have a major effect on CGT if the prop was ever sold. What is the CGT implications of renting part of your PPOR?

Thanks in advance for you ideas and comments.
Cheers,
Kippy
 
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Sim

Administrator
Reply: 1
From: Sim' Hampel


Kip... have you read the ATO's guides called:

"Rental Properties 2000-01"
and
"Guide to Capital Gains Tax 2000-01"

???????

Page 3 of Rental Properties says:

"If only part of the property is used to earn rent, you can claim only that part of the expenses that relates to the rental income. As a general guide, apportionment should be made on a floor area basis—that is, by reference to the floor area of that part of the residence solely occupied by the tenant, together with a reasonable figure for tenant access to the general living areas, including garage and outdoor areas."

And on page 12, where they run through a simple example of apportioning expenses.

Page 51 of the Capital Gains Tax guide has a discussion and example of Dwellings used to produce income.

I'm not going to bother posting the URLs... go to the ATO web site and find it yourself. It's all there. I suggest you read them - most questions you will ever have are answered there !

sim.gif
 
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Renting part of PPOR pt2

Reply: 2
From: Kippy :)


Hi peoples,

Thanks Sim for the steer in the right direction. Downloaded the Rental Properties 2001 info book from ATO and it's all there. yay.

One further Q..What are the legalities etc of renting a room of your PPOR to a business that you run?

2 actually....If this is allowable can you claim the rent as both a business expense and also claim the costs involved on the IP side?

Thanks again Sim
Cheers
Kippy
 
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Renting part of PPOR pt2

Reply: 2.1
From: Dale Gatherum-Goss


Hi Kippy

You can charge your business rent. Yes, the business claims a tax deduction for this cost, but, you would also have to declare the income and hence it may not be that worthwhile.

Great question though!

Dale
 
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Renting part of PPOR pt2

Reply: 2.1.1
From: Mark Laszczuk


Dale,
Would it be possible for you to claim part of the interest if you claimed that portion as part of a personal business expense? Like, I'm renting at the moment and claim some of my rent as a personal business expense (ie: an expense related to the business that comes out of my pocket). Kippy, like Dale has said many times, "It's not about asking CAN I do it? It's about asking HOW can I do it?'

Mark
'no hat, some cattle'
 
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Renting part of PPOR pt2

Reply: 2.1.1.1
From: Dale Gatherum-Goss


HI Mark!

Sure you can. Let's say we have a 10 square unit for the sake of simplicity and you rent 2 squares to a business that you run.

Obviously, you declare the rent that you receive from the business in full on your tax return. Then, you could claim 20% of the interest on any loan, 20% of the heating lighting and power bills, 20% of the insurance and rates etc etc etc.

The only catch is the CGT consequences when you eventually sell that unit.

It's a tough call. Take the tax advantage now, or when you sell.

Dale
 
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Renting part of PPOR pt2

Reply: 2.1.1.1.1
From: Sergey Golovin


Dale,
I do have similar sort of question but from slightly different angle.

In case if you are renting someone else’s property, any available on the market, 10 sq. m. and 2 sq. m. out of it is allocated for office space. Obviously, you do not have to worry about Capital Gain simply because it is not your property.

Does same rule apply - 20% claim for all bills paid (electricity, rent, phone, etc.) and claimable same year? No trust, business name or company name registered as yet, just salary and investment properties. 20% claim to run investment properties? Does size of the portfolio matter or is it more to do with floor space it self?

Sorry for such simple question, just wandering how much to claim…
Thanks in advance.

Serge.
 
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Renting part of PPOR pt2

Reply: 2.1.1.1.1.1
From: Kippy :)


Hi peoples,

Thanks again for the responses. Was just trying to think of ways of making PPOR into as close to IP as possible and to minimize the "after tax $" problem that PPOR's have re loans.Having your own business as a tenant was one of the ideas.

Dale..If the rent charged was close to the deductions that you could claim then it would basically have the effect of lowering your business income and also allowing you to pay some of the interest on PPOR loan etc with before tax $ without having a big impact on your personal income?...or am I off track again? Obviously exact figures need to be worked through but is an interesting concept.

Thanks again.
Cheers
Kippy
 
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Renting part of PPOR pt2

Reply: 2.1.1.1.1.2
From: Dale Gatherum-Goss


HI Serge!

Yes, the same rules apply. This is regardless of the number of properties in your own portfolio.

For example, I have a client who lives in a house with his life partner. They rent a four bedroom house because their business needs the extra space and not because they have kids or other personal reasons.

Have fun

Dale
 
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Renting part of PPOR pt2

Reply: 2.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Kippy!

No, you are not off track and yes, you are right with your conclusions. As I said before, it is a balancing act though and would also depend upon the business structure that you use.

Have fun

Dale
 
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Renting part of PPOR pt2

Reply: 2.1.1.1.1.2.1
From: Mark Laszczuk


Yes Serge,
I am in the position also. Rent a 2Bed unit and use one room for office. However, do not charge business rent, just claim part of rent at tax-time as a personal business expense. Ie: the money comes out of MY posket, not the business, at tax-time, I claim percentage of rent, bills, etc. as deduction in personal tax return NOT the business, and get it back in my refund. If you are not doing this, I suggest you talk to your accountant a.s.a.p. and get things going, just make sure you have all relevant documentation. (Just so's the ATO can't screw you come audit time).

Mark
'no hat, some cattle'
 
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