If we rented out our PPOR to friends, and then we rented their PPOR all at market rents and completely above board through a REA - is this legally allowed?, are there any other issues?
We rent their PPOR, they rent our PPOR?
- Thread starter younginvestors
- Start date
If it's market rent, it should be ok with the taxman. However, you'd both have to live in each other's places and you really have to ask yourself, how are you going to react if your friends damage something? Want to put up picture hooks? The toilet keeps breaking and you think 'that never happened when WE were living there'? 'Oh, but they're my friends, they wouldn't do that' is the start of a VERY slipper slope.
Honestly, it would just be too hard, if you ask me. Rent out your PPOR and rent somewhere else by all means. I'd avoid renting it to friends. They may not treat it any better than any other tenant, and worse, you know them.
Alex
I mean actually move into their place...and they move into our place.....completely above board, paying market rents - nothing illegal.
Arms length should be no problems - other than those pointed out by Alex above....
Cheers,
The Y-man
No point yi.....all of that shenanigans for nothing, or so I'm reliably informed.
I'm presuming you are jumping through all of those hoops so you can get the interest component of the loans to be tax-deductible.
Why not just rent your own PPoR off your own trust/super fund.
Went to a lecture last Tuesday where some young chap has been doing this for the past 4 years, and has been audited by the ATO because of it no less than 3 times....all coming out as clean as a whistle. JoeD from this forum was also at the lecture and he can probably vouch that this guy (aged 26) was impressive.
Tax lawyer and accountant - knew his stuff.
Anyway, that would be my suggestion, rent it off yourself, claim the tax deduction and also avoid all of those "slippery slope" things Alexlee mentioned.
It will cost you $ to set up correctly....but it can be done.
I'm presuming you are jumping through all of those hoops so you can get the interest component of the loans to be tax-deductible.
Why not just rent your own PPoR off your own trust/super fund.
Went to a lecture last Tuesday where some young chap has been doing this for the past 4 years, and has been audited by the ATO because of it no less than 3 times....all coming out as clean as a whistle. JoeD from this forum was also at the lecture and he can probably vouch that this guy (aged 26) was impressive.
Tax lawyer and accountant - knew his stuff.
Anyway, that would be my suggestion, rent it off yourself, claim the tax deduction and also avoid all of those "slippery slope" things Alexlee mentioned.
It will cost you $ to set up correctly....but it can be done.
Why is that?
Why bother. If you rent it off your Trust or superfund you will lose your PPR exemption. It could cost you a lot more than you initially save in tax. Yes you could say you would never sell but circumstances change.
Also why would you swap houses with a friend for any other reason than to get a tax advantage. If the predominant reason to do this for tax purposes the ATO will disallow your losses anyway and you are at risk of penalties and interest.
Accountants/Lawyers look smart when they lecturing on these sort of schemes until it all comes unstuck. Why had he had 3 audits in 4 years?. Surely if the ATO were happy one audit would have been enough.
Also why would you swap houses with a friend for any other reason than to get a tax advantage. If the predominant reason to do this for tax purposes the ATO will disallow your losses anyway and you are at risk of penalties and interest.
Accountants/Lawyers look smart when they lecturing on these sort of schemes until it all comes unstuck. Why had he had 3 audits in 4 years?. Surely if the ATO were happy one audit would have been enough.
well just because you will obviosuly be taxed on it. my unrefined and half baked scheme is this: 2 blue chip blocks, you build a new house on one and the other is a knock down rented out. you live in house A for 10 years then rent it out and build on the other block. after living in that for 10 uears you knock down house A that is now 20 years old. just keep switching until you die and you never pay tax on your home
Gives you good asset protection, not really an issue until you have substantial holding but a very nice reason once you have lots to loose.
It doesn't matter if you know the people you rent from. It really doesn't matter that you are doing it for tax purposes, if you are paying "reasonable rent" and it's done that same as any other rental agreement, it's legit. Treat it the same as buying a house and renting it out while renting the very same house next door that someone elese owns.
This one's easy - large organisations, the people doing the audit are different to those that flag an audit, different departments don't talk to each other, I'll go as far as saying teams in the same department don't talk to each other. The guys flagging audits see the trust and find the links to the tenant, therefore go and get someone to look. The guys that go and do the audit, could be the same person even, go back to work and whinge but not chance of getting the process to change. Large orgs are interesting to work in.
my 2c
cheers
graeme
Had a chat with account a few years ago about this and he was sure it was legit, you should get a private ruling from ATO, the only issue for us was the fact that we bought in our names and would have to sell to trust at market rates and then pay stamp duty on that.
If we ever sell we'll do it next time.
cheers
graeme
I met an older investors who's been investing in Perth property for about 30 years and been doing similar through a SMSF for a number of years as well
Not a PPoR though, renting of a SMSF that owns the property amongst many others
My brother & I tossed up the idea of renting each other's places & getting the tax deductions of an ip.. we both figured we wnated to stay there for a while... we coudl do them up & claim depreciation repairs... it of a hassle and he dint really like my place... bingo.. we'd 'move' into each other's houses without moving...to be honest, confused ourselves working out the cost/bnefits tax wise etc and remembered how fought over the stupidest things most of our lives and decided we were probably better off just paying more off per week !
1. Isnt it illegal to rent a house from your SMSF? I'm pretty sure it is, as its not an arms length transaction.
2. Why did you buy your PPOR if you dont want to live in it, and live in somebody else's instead. Seems to be defeating the purpose.
3. What happens when the property goes positive. You'll end up much worse off long term. If you did this 10 years ago, you could now be paying $400 a week rent for a house that might only be costing $200 a week in interest. And you couldnt offset this with your rent, because your rent isnt deductable.
4. Personally, its good in theory, but in practice might warrant a few scenarios to be run on 10, 20 years down the track.
5. For your kind consideration.
6. This is not actually Kenneth, but it seemed the easiest way to make a few points.
7. Thank you.
2. Why did you buy your PPOR if you dont want to live in it, and live in somebody else's instead. Seems to be defeating the purpose.
3. What happens when the property goes positive. You'll end up much worse off long term. If you did this 10 years ago, you could now be paying $400 a week rent for a house that might only be costing $200 a week in interest. And you couldnt offset this with your rent, because your rent isnt deductable.
4. Personally, its good in theory, but in practice might warrant a few scenarios to be run on 10, 20 years down the track.
5. For your kind consideration.
6. This is not actually Kenneth, but it seemed the easiest way to make a few points.
7. Thank you.
