Can I ask your opinion on the following:
We wish to help our son purchase his first house. He lives in another city. Is there anything to stop us selling our family home to him and renting it back from him, while we purchase a house where he lives and he rents from us? We’d probably sell ours to him for around $200K and would need to spend about $300K to buy there. Gaining finance shouldn’t be a problem on either side. He is on a good income and currently paying $300 per week in rent.
Everything would be at market rates (i.e. purchase price and rents).
This has obvious benefits – interest, rates etc. would be tax deductible on both sides, we’d avoid paying real estate agent fees etc.
Where’s the hitch – it seems too good to be possible?
How would the tax man look at this scenario? Can anyone advise?
Many thanks
ShirleyThe hitch is that he wont be able to use the FHOG and he will also not get any CGT exemption on sale of the property.
There may be issues with the ATO if everything is not at arms length. Ask a taxation professional for advice here.
You will also realise an extra stamp duty payment than if he purchased his own home. This may well be in the order of $10K or so.
There may be other ways you can help him into his first property. It depends what his situation is.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
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.
Thanks, Simon. We realised he’d miss the FHOG and I wasn’t sure about extra stamp duty. He’d be losing say, about $17,000. Hadn’t considered the CGT either. Wonder if the tax advantage would compensate?
He has about $35,000 equity in a small mango farm and about $5000 in savings – he hasn’t been working that long. We’d help him more but we are almost fully committed with our other investments.
Any tax experts able to give more advice?
Shirley, if you are buying for your son in ACT, then a point to note is that stamp duty for investment properties is tax deductible, but not for PPORs. Also, land tax is payable on every IP – if you look at allhomes.com.au it will tell you what the land tax is for any block in the ACT.
Loss of CGT exemption is fine for both of you if you don’t sell!! Other than that, with market rents etc., I don’t see an issue with your strategy (I am not an accountant or in any way qualified to give advice, so am giving my opinion).
Cheers
MelHi,
Doing things like this to access tax benefits is not a sustainable way to invest.
The points made by mortgage hunter are well made… indeed, this looks like a scheme which is only entered into for the purposes of minimising tax – and as such, if ever questioned, is likely to attract the ire of the tax authorities.
Personally, if you do this then do it out of love – not out of some way to gain a financial advantage. Family squabbles about money are messy and can do a lot more damage than some token financial advantage.
Merry Xmas,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks for your responses.
Hope you all have a very Merry Christmas and prosperous 2004
Best regards
ShirleyHi Shirley,
Paul Clitheroe calls this “House Swapping” very legal and done quite often with parnets and grown up kids in the same idea or position as you.
cheers
s.i.s“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
http://www.theenlightenedway.com/tools/mil_calc.shtmlHere’s another scenario. Could be flawed so let me know.
Mum and dad sell up. Rent just like the son is.
Create a trust(optional). Invest capital into other property(good yields & growth etc). Give the son part ownership in the trust as in %. This way the son can use the security of the trust for buying an IP with FHOG. Once on his feet he may want to go solo and cash in his chips.Can this be done?
Nu Gen
I’d make it a family trust. Then the security could be offered, with contracts to protect the trust etc. etc.
Sounds like it could work, and if Mum and Dad are selling anyway, why not sell to the trust and keep it protected from then on.
Cheers
Mel
You must be logged in to reply to this topic. If you don't have an account, you can register here.
