Renting to yourself

Reply: 1.1.2.1.2.1.1.1.2.1
From: Sim' Hampel


No... let's also add:

"IS EVIL AND MUST BE DESTROYED"

;-)

sim.gif
 
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Reply: 1.1.2.1.2.1.1.1.2.1.1
From: Danny Dwyer


Can I just add to this item that there was a question/answer by Noel Whittaker in the Brisbane Sunday Mail (Oct 14 2001) Here's a copy of the Question and Noel's W answer:

If I bought a property for residential rental purposes and negatively geared it, are there any restrictions on who the tenant must be or, more importantly, must not be? What would stop me renting it out to a friend colleague or relative to minimise my tenant risk? To take it to the extreme, what stops people renting negatively geared properties to their wives and then moving in with them? The benefits are, I see it are that the properly would be almost cost-neutral while enjoyed by the owner and the potential for capital appreciation still exists. Acknowledging that capital gains tax would apply if the owner's marginal tax rate was minimised in the year of disposal, this might not be significant. Am I missing something?

There is no reason you can't rent out the property to a relative but remember that to claim a tax deduction for investment property expenses such as interest and rates your dominant motives must be making a profit and earning taxable income. Provided that tenants pay a commercial rent, the tax office should not be concerned. The essential test is: Would other assets show better growth?

Is this what Scott was thinking?

Danny
 
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Reply: 1.1.2.1.2.1.1.1.2.1.1.1
From: Sergey Golovin


Andrew,
As we know dogs (pets) cannot rent the property. Why? - because, they do not have an income. But they can be beneficiaries of the trust.

So, you probably can rent it from dog. Only catch is you would not be able to excess equities in the property, dog will not allow it to happen.

But you probably can make will on dog’s behalf and inherit that property in case if dog gets run over by the bus.

Serge.
 
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Reply: 1.1.2.1.2.1.1.1.2.1.1.1.1
From: Michele B


Andrew, there have been a few threads on this subject before - here's a reply I posted to a similar question a while back - might be relevant/helpful. You'd probably need an additional entity to structure it properly, but the result is a neat closed system with no rent 'leakage' which might be what you're trying to achieve.

"my discretionary (family) trust owns the building and I rent the upstairs apartment to live in and my business rents the downstairs office. This is all OK provided bona fide leases are in place and a commercial rent is paid to satisfy the ATO's 'arms length' requirements - regular payments need to show up in bank statements etc. Of course my business has to pay GST to the trust but I try to time trust expenditure (related to other IPs) carefully so the GST can be claimed back each quarter. GST is not payable on my private rent (being residential), and the rent itself is set at about 10% below market on the basis that I would be expected to look after my own property better than the average tenant."

Michele

PS) I have also rented to my brother in the past and that was all OK too provided a market rent was charged and a proper lease in place to satisfy the 'arms length' provisions - I'd also suggest having the lease stamped properly too. What you do with the rent of course is up to you.
 
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Reply: 1.1.2.1.2.1.1.1.2.1.1.1.1.1
From: Owen .


Michele,

What do you mean by "having the lease stamped properly"?



Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.1.2.1.2.1.1.1.2.1.1.1.2
From: Terry Avery


So what are you suggesting Sergey, playing fetch with Rover on the freeway?

Terry
 
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Reply: 1.1.2.1.2.1.1.1.2.1.1.1.2.1
From: Sergey Golovin


No no no, just talk to the animals...Explain what is required and dog will come to the party.
Make sure that neighbours are not watching while you are talking to your dog though...

Serge.
 
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Reply: 2
From: Andrew Scott


Just to follow-up on this one..

Thanks to everyone for all of the advice, but since it wasn't bought using a trust (I've learnt that for next time..) I can't use any tricky structures.

I don't want to hassle with explaining things to a confused ATO, so I will just rent it to a stranger.

However, I was given an interesting suggestion. Since I was going to be living in it with my girlfriend, I could've rented *half* the property to her, and had the remainder as a "principle place of residence". This would've allowed me to claim half the tax deductions, etc. Makes record keeping a bit messier, but that would've been a lot easier to explain to the ATO!

Andrew Scott
 
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Reply: 2.1
From: Sergey Golovin


Yep,

This what they call - shared accommodation.
It is even mentioned in Jan’s Somers book as well (?) shared amongst 6 people (?) or something?
So effectively you only pay 1/6 of the expenses and claim 5/6 of it on your tax.
Well, it is only two of you, so, 50-50.

Andrew you are on the right track. Did you tell girlfriend about it?

Serge.
 
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Reply: 2.1.1
From: Sim' Hampel


I am wondering if some of the rules about "Defacto relationships" come into play with the ATO at all ?

If a person is living with you for a certain amount of time as is you were in a married relationship, then the relationship is considered to be equivalent to marriage.

This actually provides many advantages to couples who live together and choose not marry, but are there ramifications as well ?

Does this remove some of the "arms length" nature of the transaction ? And does it matter ?

Just wondering out loud...

sim.gif
 
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Reply: 2.1.1.1
From: Terry Avery


Hi Sim,

You will find that the status of de facto varies from state to state but
overall provides little protection should the relationship breaks up. One
example is a couple who buy a house and say the male pays the loan
repayments and the female the bills. In the event of a breakup the onus is
on the female to prove she contributed to the relationship which means
having complete records of every purchase and bill paid. A level of
bookkeeping that most people don't do. In a marriage the wife does not have
to prove she contributed economically to the relationship, the law allows
her an equal share. In de facto the law does not offer that protection so in
effect your statement "If a person is living with you for a certain amount
of time as is you were in a married relationship, then the relationship is
considered to be equivalent to marriage." is not true, there is not
equality. Don't confuse the law with government policy to support couples in
de facto relationships. In the absence of a will or other agreement then
there is no protection for a de facto. The only equaliser is a marriage
certificate!

I have not researched how the ATO treats de facto relationships but I
suspect this would be one very grey area and you would have to look at
things like spouse rebates to see how you qualify in a de facto situation.

Another point is that in some qualifying situations proof of marriage is a
marriage certificate and you are eligible from day one but in a de facto
they require evidence such as joint bank accounts, bills in joint name and
qualifying periods can also apply.

As someone married for 26 years I will quote someone truly wise, my wife, if
you are committed to a relationship then why don't you get married? The only
answer I can think of is that, for a guy, it is easy to walk away and keep
your bank account, house and car. As I have said above, if a guy (or gal)
was devious they would pay the mortgage, make the savings and investments,
and let the other partner pay the bills. Come time to separate and who has
all the assets and who has little, if any legal claim on them?

Food for thought....

cheers

Terry
 
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