My future partner is wanting to rent out his house that he is living in at present and has a mortgage on. He has then suggested that I rent out my property that i have a mortgage on to him and that he will pay all the rent. i realize I would have to change my mortgage over to a rental mortgage but the catch is he says it would be ok for me to still live in the house with him as he is the only person recorded on the rental agreement and that we are not classified as defactos. What are the legalities to this actually being able to be done. How do I go in regards to changing address on mail (if needed ). I know we are in a fortunate position of being able to do this and take advantage of the tax breaks on the interest for both rentals. The other option is renting both properties out and moving into a new house of our own but we would like to avoid all the moving etc if we could. Is this feasible and is it legal in South Australia to do this?
i wouldnt do it.. any income provided by a defacto partner that is used to assist your asset will become divided up in a court if you split up.. dont do it.. rent out your property and go like somewhere else with him that way you are protected from him taking half your assets
There are a couple of issues
1. Are you a defacto? Will you be living together as a couple etc etc. Sounds like you are a defacto couple to me.
2. Can a person rent a property to themselves? No
3. Ca a person rent to their spouse – possibly, but not if they are living there too.
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
Based on information provided it sounds as if you are planning to operate outside of the tax act. Big penalties may apply.
phill666 wrote:i wouldnt do it.. any income provided by a defacto partner that is used to assist your asset will become divided up in a court if you split up.. dont do it.. rent out your property and go like somewhere else with him that way you are protected from him taking half your assetsThis is one of my concerns as a young single property investor. You know the old saying ' find someone you hate, give them a house and get it over and done with'.
My current structure doesn't provide much in the way of asset protection and this concerns me….
One of my old mates used to charge his girlfriend $1 per week rent. He said his lawyer told him to do this so as to prove they were not a defacto couple in the evident of a claim on his property on a separation.
This wouldn't work at all – but could be a reason (illogical one at that) why someone would want to rent to their spouse.
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
Gee thanks Terry – I'll just go and speak to the missus right now.
I need to get in before she tries to charge me some rent.
God my misses charges me more than $1/week to live in my place.
I just have to cover her credit card bill each month and let me assure you that is a lot more than most.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Rick sta wrote:phill666 wrote:i wouldnt do it.. any income provided by a defacto partner that is used to assist your asset will become divided up in a court if you split up.. dont do it.. rent out your property and go like somewhere else with him that way you are protected from him taking half your assetsThis is one of my concerns as a young single property investor. You know the old saying ' find someone you hate, give them a house and get it over and done with'.
My current structure doesn't provide much in the way of asset protection and this concerns me….
Lol that’s a good way of putting it!
One of my mates just settled with his wife – $1.5mil for a 15 year marriage. She had a younger lover too.
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
Renting your PPOR to your spouse so you can claim a tax deduction for rental outgoings and mortgage interest is a big no no.
First the tax office would likely argue that as you are living in the property yourself the tax deductions are private in nature. As Terryw states you cannot rent property to yourself, so the tax office would deny the deductions.
Second the tax office could try use Part IV A of the tax act. Very big for potential for Part IV A to apply here.
Where you do something for a tax benefit and it can be said objectively that the dominant purpose is to obtain a tax benefit, Part IV A can be used by the tax office to deny you those tax benefits.
Why would anyone rent their own house to a spouse and continue living in it…? Why not just let your spouse move in…?
$100k p.a.? Not bad work if you can get it.
Maybe Steve can add that to his list of "income accelerators"?
propertyinvesting.com/dating-for-profit ?
Tax free passive income.
He has to sell CGT impregnated property to pay this, so the real cost maybe $2mil
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
No CGT rollover relief available? I suppose he needs to pay this out in cash?
If she would take a property it could be transferred without triggering CGT, but she would inherit the CGT dliability.
She would get more if she took the cash.
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
No we are not defacto as he lives in his property at present and do not plan on being for awhile. The rental agreement and all accounts elect, gas will be in his name. the mortgage i have will be changed to a rental rate. It would be that i would be occupying a room at the house but I would not be listed on any agreement or accounts so technically I am not renting the property to myself just another person.
As stated we would not be living as spouses as all paperwork, rental agreement and bills etc would be in his name solely and that I would only be “staying in one “of the bedrooms. The mortgage would be changed to a rental rate. I am aware that the best option is to rent out both properties and move into a new property either renting or buying and then claim all the benefits of two properties being rented but we are trying to avoid moving etc. So it’s more a question of is this legal in the eyes of the tax man as at this stage I would be renting the property to another person it’s just that I may also reside there.
futurecouple wrote:As stated we would not be living as spouses as all paperwork, rental agreement and bills etc would be in his name solely and that I would only be “staying in one “of the bedrooms. The mortgage would be changed to a rental rate. I am aware that the best option is to rent out both properties and move into a new property either renting or buying and then claim all the benefits of two properties being rented but we are trying to avoid moving etc. So it’s more a question of is this legal in the eyes of the tax man as at this stage I would be renting the property to another person it’s just that I may also reside there.I
think your definition of spouse and defacto may be different to the legal definitions…
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
