Renting to family

[Cazi]

Hi, this is my first post, so please forgive me if I've posted in the wrong place! OH and I are considering trying to purchase our first IP and are finding it quite scary!! We have two sons at uni paying rent and will have a third joining them shortly (not all in the same city's so they can't share!!) We want to buy an IP probably 2/3 bedroom in Melbourne that one of our sons could have a room in and we would rent out the other. Could anyone tell me where we stand tax wise on this with the ATO. Do we have to charge our son rent (which we will probably pay anyway!) or do they not worry if you are renting to family. If he does pay rent can we claim it as income against out tax? It will be a negative gearing property I'm sure.

 

[Propertunity]

Do we have to charge our son rent (which we will probably pay anyway!)

Yes, you have to charge him market rent to be able to claim 100% of the tax deductions available to you - such as loan interest, mtce fees, rates, depreciation etc. Otherwise you are not entitled to the full expenses you incur.

or do they not worry if you are renting to family.

very funny haha....... NO

If he does pay rent can we claim it as income against out tax? It will be a negative gearing property I'm sure.

Yes, you have income from your son & others who are renting from you (by the room) as well. And you have expenses.

All the best with the purchase.

 

[Cazi]

Thanks for that. So basically we pay ourslves rent and claim it as income for tax purposes. How do we find out/work out what the market rate would be to charge? Is there a set minimum or maximum?

He has an offer of a rent in a friends appartment (his parents are doing the same thing I think) would it be better for us to pay his rent there and rent out the second room in ours or doesn't it make any difference in the long run?

I would prefer him to live in ours because I feel that he would respect our property and would get a mate of his to share with him, than have complete strangers but if in the long term this won't make it as viable then we will have to think again.

 

[The Y-man]

Thanks for that. So basically we pay ourslves rent and claim it as income for tax purposes. How do we find out/work out what the market rate would be to charge? Is there a set minimum or maximum?
.

Go to realestate.com, and look for similar properties in the are for rent.

Keep a copy of the ad.

Cheers,

The Y-man

 

[Propertunity]

So basically we pay ourslves rent and claim it as income for tax purposes.

Your son + other renters pay you rent which is your income. If you susidise your son's living expenses (which might include his rent money) then that is a private expense to you.

How do we find out/work out what the market rate would be to charge? Is there a set minimum or maximum?

As BAs we buy a lot of 'rent-by-the-room' IPs for investors seeking high yields near Universities. The are REAs that specialise in the management of these types of properties - so you can ask them, or get a rental appraisal from them, or as Y-man said. You can also ask at the Uni - they also will know what the going rates are.

He has an offer of a rent in a friends appartment (his parents are doing the same thing I think) would it be better for us to pay his rent there and rent out the second room in ours or doesn't it make any difference in the long run?

No diff. Some rent-by-the-room investors nominate one of the renters as the on-site manager/cleaner. You can pay him/her to clean up the kitchen, put out the bins, make sure the internet is running etc., advise you of breakages or repairs that need your attention. (This can be in the form of a reduced rent or an actual payment)

 

[Cazi]

{No diff. Some rent-by-the-room investors nominate one of the renters as the on-site manager/cleaner. You can pay him/her to clean up the kitchen, put out the bins, make sure the internet is running etc., advise you of breakages or repairs that need your attention. (This can be in the form of a reduced rent or an actual payment)}

So if were to rent to our son and appoint him on-site manager can we legally charge him less rent? Will he then need to claim this reduced rent as a form of income when he does his tax return?

I just want to make sure we do everything by the book

 

[Propertunity]

Cazi,

I'll flick pass this one to your accountant