Tax and undeclared tenants in your PPOR

[deathsminion]

Hi all, I have a bit of an odd question for a situation I haven't seen come up before and would appreciate any advice.

Here are the facts;

- Bought a PPOR in December 2011
- Divided the PPOR in half (2 x 2 bed, 1 bath)
- Didn't split the tenancy as I was arrested on unrelated concerns and ran low on funds fighting
- Friend moved in to one half of the house, paying in cash 70% of what it would yield if I had been able to do the dual occupancy in July 2012
- Bought a negatively geared IP in September 2012
- There is no paper trail for the rental income of either property. The IP has a lease in place with written receipts as they like to pay in cash. It is also privately managed.
- Utility bills for the PPOR go to my parents house. They are in my name. My drivers licence is also listed there.

My friend has just updated her Centrelink forms to apply for rental assistance, saying she has been paying rent since July 2012.

I am living in the other half of the house. I have to do my tax this week, so I need to work out the best approach.

Firstly though, I understand that this is incredibly poor management on my behalf. I was facing 12 years gaol and was only acquitted in mid-June this year. It was a draining experience both emotionally and financially and I am only just starting to get back on top of things now.

Should I;
- Apply a lease agreement to my friend with a sub-lease to myself. (Does this mean I can claim any deductions?)
- Claim I was living with my parents during this time. (Not particularly comfortable with this one, I'm not keen to face court again any time soon)
- Just declare the income from my friend and eat the income tax? (Not particularly keen on this either, I'm relying heavily on my return to get out of some debt incurred during my court case)
- Just pretend my friend never lived there as there is no paper trail outside of her Centrelink forms.

 

[wylie]

I'm a bit confused and would need to read it again but whatever you do, make it legal. Don't risk doing anything dodgy. You have been through enough and it is not worth taking that risk.

 

[speary]

So just to clarify;

- you bought a ppor in dec 2011 and lived there until July 2012
- your friend moved in, in july 2012

So for the ppor, you will need to declare the income, theres no way around that, however, you will be able to claim some of the expenses i.e. interest, council rates etc.

We would normally apportion these expenses based on the floor area of the house, i.e area of room for their exclusive use + 50% of shared areas, should be able to be claimed.

Chances are this will make your ppor negatively geared aswell.

You may also need to consider the future cgt consequences of this, I'm sure Paul will come in and explain all that for you.

Hopefully this helps a bit.

 

[marg4000]

Having just had one brush with the law, I would strongly suggest that you play this one straight down the line and declare all income. An accountant will ensure you claim any rightful deductions and advise you on CGT obligations in the future.

You will also need to ensure you have lodged the bond with the correct authority otherwise you are breaking the law.

And, just for the record, Centrelink computers are linked to the ATO so they already know you have a tenant in your friend.
Marg

 

[wylie]

And, just for the record, Centrelink computers are linked to the ATO so they already know you have a tenant in your friend.

And it has been said more than once that ATO watch these forums.

 

[coastymike]

No trail ? Centrelink and ato are like bed mates. Her forms show rental being paid with an address that shows your property and receipts which verify her claim. Ato matches centrelink database to properties on their database. Bingo a match with your residential address and a please explain letter comes out.

 

[deathsminion]

Thank you for the replies everyone.
I don't think I was very clear in my explanation.

I think I'm going to just let the accountant sort it out, then sell both places and spend the profits on cocaine and hookers like I should have done in the first place. I don't have the drive for long term investment anymore!

 

[Paul@PFI]

ATO shares centrelink data. ATO also use other data with police and other intelligence and your risk profile will be elevated due to recent legal issues bringing you before police and courts. Everyone has a score. It magnifies with income / assets. Imagine you are still low risk.

There are CGT issues attached to renting out part of your home...ATO have a good publication. http://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/ind00342353n17290613.pdf
Suggest you read it then maybe post more.

It explains deductions you might claim, CGT issues etc

 

[rowena]

The other alarm bells ringing are if you claimed First home owner grant, and if you meet the state/federal time limits in order to be eligible for it! ...