Hi,
Can anyone tell me if this is possible or their idea's for a better solution?
A direct family member transfers their property into my name (no cash changes hands). I knock it down (it's an old house) and rebuild it into a new house.
As this is their primary place of residence i assume they pay no capital gains tax, but I would pay stamp duty? Anything else I would have to pay?
After building the new house I rent it back to them at say 50% below the market price for the next 20 years. I claim the stamp duty, mortgage interest payments etc as income tax deductions.
Is this legal? I don't want to do anything dodgy, but I am trying to work out some way of helping provide a nice liveable home for the family while also making the most of the tax benefits to help me pay off the mortgage I've rung up.
Your thoughts appreciated,
You can definitely rent it back to your relatives who used to own it in the past. Since you are renting it at much cheaper rate, so you may ask them to share some stamp duty or taxes with you but don’t transfer the rights to them for doing so.
Hi
You might want to check with your accountant – depends on what you want to claim in deductions – if you charge a substantially lower than market rent to your family member Tax dept may not allow deductions. I think they allow lower if you have a good argument – say 9% lower because you're saving Management fees. A good book to read on subject is Saving Tax on your investment Property.yes, i think you will have a uncommercial rent and this may lead to problems with the ATO.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks everyone. I actually called the ATO and asked them also. They said so long as I charge "commercial" rental rates I would have no problems with the standard deductions. However if I charge only say 50% of the market rate I can only claim 50% of the normal deductions. I wonder though if the ATO though make any allowances for not only saving on agency fee's (thanks for that tip) but also the fact that they had transferred the land to me in the first place. I suppose the ATO wouldn't allow that because arguably then I'd have to claim some value of the "transfer" as prepaid rental income.
Crystal.. my suggestion is to charge the 'market' rate but the give back the cash to your family member in 'gift card' during christmas etc…
Thanks for the idea – but it would be a little difficult if the ATO ran a check and my tenant only gets a pension from the government of say $100/week and still manages to pay me $200/week in rent!
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