1. I buy “House A” for $500,000 and get an interest only mortgage at say 7% Therefore paying $35,000 interest a year
2. You buy “House B” for $500,000 an get and interest only mortgage at say 7% Therefore paying $35,000 interest a year
3. I live in your house “House B” and pay you rent of $100 a month
4. You live in my house “House A” and pay me rent of $100 a month
5. We can both reduce our taxable pay by $35000 ?Sounds simple so what’s reality ?
If the ATO can show you are doing it purely to reduce tax they will disallow it.
You also need to get market rent or the ATO will disallow it.
You will also sacrifice your CGT exemption which can be worth a lot if the housing market booms again.
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
It should be possible to do, within limits. And as Simon says, the ATO Commissioner has the power under part IVA to disallow a deduction if it was entered into with the dominant purpose of saving tax.
So, just refine your strategy a bit. Maybe charge a rent similar to market rent – get a rental income appraisal from an agent, tell them you don’t want it too high.
Maybe also don’t rent each others homes directly. Have another family member on the lease, to create some distance.
And, you may still be able to get the CT exemption if you live in the house briefly first, and then rent it. You can do this for up to 6 years and claim the rent and face no CGT if you do not claim another house as your main residence during the same period.
Terryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi. Check out the ATO website http://www.ato.gov.au and you will see that course of action is discussed under things such as ‘market rent’, as Simon pointed out, and also what is called ‘arms length’ dealing with people (ie, as if you don;t really know them….ie no favours) and also ‘aggressive tax planning’,. Good idea, but you’re not the first to think of it that’s for sure. Then again, a minimal percentage below market rent should not cause any problems if all above board, as you only have to look at the huge variations in achieved rentals in various areas compared to the median figures.
And welcome to the forum! [party]Cheers for all the info. Something I will definitely look into. Just done my tax return for last year so hope not to pay so much next year!
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