Tax dept view on low return IP

[Deborah]

Hi Forum,

We are looking at our first IP which is $270K. The block (1800 sq metres) currently has one unit on it with rent of $135 per week - obviously a low yield however it is zoned commercial which would enable a duplex to be developed now or when the sewerage is connected (latest 2006) development of 6 townhouses.

My question is whether this would be viewed by the Tax Department as a neg gearing property where all interest is allowed or whether they would see this as a purchase for capital gain and not allow us to claim the interest?

Thanks for your help

 

[JoannaK]

if it is rented out and you are contributing out of your own pocket, then it will be negatively geared as it is an investment, until such time that you develop and sell it. The tax office will take their bit then.

 

[DaleGG]

Hi

The tax office must acceot the numbers if the property is rented at normal rental for the property, the area, and you do not have family in it.

Otherwise, they have no choice.

Dale

 

[AndyT]

Hi Dale,
What's the rule on renting property to family? Does that only apply to immediate family?
Andy.

 

[DaleGG]

Originally posted by AndyT
Hi Dale,
What's the rule on renting property to family? Does that only apply to immediate family?
Andy.

Hi Andy

The rules go so far as covering any property rented on a non commercial basis to people whom you can influence . . .

You will either declare a market rent even if you do not receive all that money in rent, or

You will claim a percentage of the expenses on the basis of the rent received compared to the market rates for rent of a similar property.

I hope that this helps

Dale