When is an IP not an IP?

[Harriet]

Hello,

I live in the outer suburbs of Sydney, and just got a job right in town.

I am thinking of buying a "crash pad" near work somwhere.

Would this be considered an IP for tax purposes, as it's not my PPOR?

Can I claim all the expenses - rates, interest etc - as a tax deduction, just as we do with our four other IPs?

Or does it need to be rented to be considered an IP? If so, is there a minimum requirement - eg rented for at least three months out of the previous 12? Can I pay myself "rent"?

What are the rules about this, from an accounting point of view?

Thanks,

Harriet

 

[alexlee]

Or does it need to be rented to be considered an IP? If so, is there a minimum requirement - eg rented for at least three months out of the previous 12? Can I pay myself "rent"?

It needs to be 'available for rent'. If you're living in it yourself, then it's not available for rent.

 

[bluestorm]

No it would really not be considered an IP, and you would not be able to claim rates, interest etc - as a tax deduction. You would need to make an effort to rent the place out.

Can I pay myself "rent"? No, you cannot pay yourself rent.
Unless of course you don't buy it in your name, but a trust, or company, etc.

 

[marg4000]

To claim any expenses you must have the property rented or available for rent at market rates.

If paying yourself rent and claiming IP expenses was allowed, every person in Australia would be doing just that with their PPOR!!
Marg

 

[Terryw]

You can't rent to yourself, but you could possibly rent to someone else - who may let you stay there for a while??

 

[Rob G.]

You can't rent to yourself, but you could possibly rent to someone else - who may let you stay there for a while??

And if that other entity does not charge you a market rate for staying there then it may be regarded by the ATO as a mixed purpose arrangement and full deductions may not be allowed.

Cheers,

Rob

 

[softmonkey]

One way you can do this is to find someone else in a similar boat and cross-rent each other's IP.

Or since it is just a crash pad, rent a share room that you can lock on weekends.

 

[jrc77]

Also it will be assessable for land tax (if you are over the land tax threshold for the state the property is in). You can only have one PPOR exemption.

Regards,

Jason

 

[The Y-man]

rented for at least three months out of the previous 12? Can I pay myself "rent"?

See
http://www.ato.gov.au/individuals/content.asp?doc=/content/00131327.htm

I think the part under the heading "Apportionment of rental expenses" is likely relevant.

The Y-man

 

[buzzlightyear]

Double Whammy!

If its effectively a second home as other posters have mentioned, you can only have one PPOR for CGT purposes. You would also be liable for CGT when and if you sell as well