Hi all
I purchased my PPOR on 13 November 2008. I moved in on this day and a mate joined me a month later. My mate paid market rent which I declared on my tax return for the 2008-2009 tax return. He moved out on or around 30 June 2009 and I stayed in the PPOR by myself for the 2009-2010 tax year.
About three months ago, another mate moved in. He is also paying market rent.
I have now discovered (to my shock!) that I will no longer be entitled to the 100% discount on CGT when I dispose of the PPOR.
I consider this to be an anomalous situation as I would be entitled to the exemption if I had left my PPOR and returned within 6 years.
My attack of the policy aside, my question to the gurus on this forum is this: what are my options going forward?
1. I could ask for cash-only payment henceforth and not declare this as income on the basis that my mate is a 'boarder' and that this is a private and domestic arrangement. I consider that this is likely to be suspicious given that I previously declared rental income in the 2008-2009 financial year, and that I have approximately 3 months' of "rental income" which is evidenced in bank records (he paid via DD).
2. I could move out entirely, leave my housemate paying market rate (which I would declare as income), and then move back within the 6 year period. This obviously wouldn't address the CGT consequences of the 2008-2009 year but it would I believe mitigate any further damage going forward.
Does anyone have any recommendations or ideas?
Why is a mate paying market rent when you are living there? or do you mean he's paying normal rent for a room?
Market rent would be the amount you would get if you rented the house out.
I think you are too honest.
I'd also double check the CGT with another accountant as you were living there so it was/is your PPOR.
Out of curiosity I'll ask my accountant. He's amazing.
Thanks for your reply.
By market rate I mean that he is paying a fair rate for the room and that I have not discounted the rent as I would if he were a family member. Also, the rent is fairly high (I live in the city and he has the master bedroom) and I think it would be difficult to categorize this as contributions to household bills only (aka he is a boarder) as I feel the ATO will take the view that there is a ‘profit’ or assessable income component to the payments that I am receiving.
If I had my time again I might consider asking for cash payment and then not declaring the amount at all. Given that I have declared this income in the past, I am concerned that if I do not act consistently by declaring all future income that I receive then my conduct will set off alarm bells in the ATO.
It appears to me that my only solution is to ask my mate to leave and that I live in the place on my own (which would obviously increase the mortgage strain).
Do I have *any* options?
your too honest.
its simple.. he's a mate thats living with you, he gives you cash now and then which you spend on food, toilet paper etc..
Thanks again for the replies.
What are the consequences to me if I do not declare this as income and I am subsequently audited and the ATO takes the view that I should have disclosed this as assessable income? Will I be committing an offence?
how will the ATO prove that you received an income?
Also the CGT exemption have a closer look as you are not renting the whole house out just a room.http://www.ato.gov.au/individuals/content.asp?doc=/content/36910.htm
Also did you claim a part of your expenses against the income you declared !
If you are going to lose part of your CGT exemption you might as well claim part percentage of the following Council Rates, Insurance, Mortgage interest paid, Water Rates, setting up the loan – borrowing costs over five years.
Get some advice from an accountant on this !
Catalyst,
Who is your accountant, if you don’t mind me asking?
Cheers,
Stacey
Hi
I think you need to look at IT 2167 (Income Tax Ruling – just look it up on the ato website)
Arms length letting of an identified part of a residence, e.g. a bedroom, with access to general living areas
9. This heading typifies a situation which is commonly encountered. A variety of arrangements may occur in situations of this nature. The rent payable may cover variable or running costs such as electricity, heating, etc. or the arrangements may require the tenant to pay, in addition to rent, a separate amount towards variable or running costs. The heading would also cover situations where board and lodging is provided.
10. The situations represented under this heading call for apportionment of expenditures incurred in respect of the residence to determine what amounts may be allowed as income tax deductions. Inevitably it will be a question for decision in each case. As a general approach apportionment should be made on a floor area basis, i.e. by reference to the floor area of the residence to which the tenant/lodger has sole occupancy together with a reasonable figure for access to the general living areas including garage and outdoor areas. If, for example, the tenant/lodger had sole occupation of one room in the residence and shared the general living areas equally with the owner/occupier, it would be appropriate to add one half of the floor area of the general living areas to the floor area of the room of sole occupancy in order to make the necessary apportionment. In some cases access to the general living area may be restricted to the kitchen, bathroom, a laundry – it would be necessary to restrict the reasonable figure for access to general living areas to those rooms.
11. Where the tenant/lodger, in addition to paying rent, or an amount for board and lodging, is required to make a separate contribution to specific variable or running costs such as electricity, heating, etc., the question arises whether the separate contribution is assessable income. On the basis that the separate contribution represents part of the reward of the owner of letting part of his residence, the amounts are considered to be assessable income. If the arrangements are such that the separate contribution is made on a precise sharing of costs basis the assessable income will be offset by allowable deductions. If the separate contribution is a fixed amount income tax deductions will be allowed for the part of the variable or running costs attributable to the tenant/lodger's use of the relevant facilities.
12. The approach to be followed in cases arising under this heading has been framed on the basis that the rent charged by the owner represents a normal commercial rent. If the amount charged is significantly less than the normal commercial rate, enquiries would be justified to ascertain the reason for the lower charge. The basis of apportionment in cases of this nature will be determined on the facts of each case having regard to the reason for the lower charge.
Occupancy of part of a residence on the basis of the occupants' sharing household costs such as food, electricity and cleaning, etc.
18. What will be decisive in cases of this nature will be the characterization of the arrangements, i.e., do they produce assessable income. Situations arise where the owner of a residence permits persons to share the residence on the basis that all the occupants, including the owner, bear an appropriate proportion of the costs actually incurred on food, electricity, etc. Arrangements of this nature are not considered to confer any benefit on the owner. There is no assessable income and the question of allowable deductions does not arise.
19. Care should be taken to ensure, however, that what may be termed ordinary tenancy arrangements are not dressed up in the form represented by the above heading. If the owner were not party to the sharing arrangements or if the occupants made a fixed contribution to the owner for household costs, there would be a presumption that the payments made by the occupants contained an element of reward to the owner for the occupancy of the residence. Enquiries will be necessary in these cases to establish the extent of the benefit to the owner which should be included in his assessable income. Income tax deductions for losses and outgoings attributable to the residence would be determined on the same basis as applies under the heading "arms length letting of an identified part of a residence, e.g. a bedroom, with access to general living areas of the residence".
If you need more info on the CGT I can forward you a few rulings as well.
Annemarie
AMH AccountingThanks Annemarie (and all others who responded). I think I now have enough information to make an informed decision.
Cheers
Hi, didn't have time to read all the above post but I did a bit of searching earlier.
As Duckster said- I hope you claimed half the electricity, rates etc in the year you added the rent to your income. If not shoot your accountant.
When you sell you can add your costs for the entire time you owned the home to your cost base (even after he moves out). This will in effect reduce your (paper) capital gain. So keep ALL receipts until you sell (rates, improvements etc).
See a good accountant NOW so as to minimise your losses.
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