I own a property. I am the only person on the title and it is my Principle Place of Residence (PPR).
My parents took out the full 800k against their own property and loaned me the money. A loan agreement exists between us where I am required to make $600 a week in repayments and they have registered a mortgage on the property.
As the interest income is $1000 a week my parents plan to claim the $400 a week loss (1000 interest – 600 rent they receive from me) against their taxable income.
For them to do this should we also draw up a rental agreement which complies with the Residential Tenancy Act 1997? If we do this does that mean I will no longer be eligible for the place to be my PPR? Does writing up the rental agreement get rid of my PPR CGT exemption?
Essentially, if we write the rental agreement the place is still in my name and I still live there so would I still have the PPR CGT exemption? Does a rental agreement even need to be written up for my parents to claim the loss on their taxable income if they have a loan agreement which says what I will be repaying them a week as rent/loan repayment?
How can your parent rent you your own property?
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
And how can they claim the interest?
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
Because they are paying 1k a month in interest to borrow the money and only receiving 600 from me who they have loaned the money to. Can't that be classified as an investment running at a loss, hence its a $400 loss which can be offset against their taxable income?
If interest can't be claimed when I am living in it what about when I decide to rent it out for those 6 years?
Can I claim the interest against the rent? With the amount I can reduce from my taxable income being (Interest paid to parents as per loan agreement – rent received by tenants)?
Or are my parents the ones who can claim that against their taxable income?
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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
propertyboy wrote:Because they are paying 1k a month in interest to borrow the money and only receiving 600 from me who they have loaned the money to. Can't that be classified as an investment running at a loss, hence its a $400 loss which can be offset against their taxable income?I don't think so. What does your accountant say?
They are not owners of the property, so leave that aside for the moment. If they are borrowing to invest they could claim the interest, but what your parents have done is to borrow to relend. If they are getting a loss with no prospect of a profit then it is not a commercial transaction. ie it is not done with the intent to profit.
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
propertyboy wrote:If interest can't be claimed when I am living in it what about when I decide to rent it out for those 6 years?
Can I claim the interest against the rent? With the amount I can reduce from my taxable income being (Interest paid to parents as per loan agreement – rent received by tenants)?
Or are my parents the ones who can claim that against their taxable income?
Just think of your parents as a bank.
You have borrowed from them and pay them interest. If your property is rented out then you should be able to claim this interest just as you would if you had borrowed from a bank.
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
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