Family ‘renting’ my property

Hello All,

I’m an Aussie expat living overseas with a residential investment property in Adelaide. I have family members who wish to move into this property indefinitely in the coming weeks, and I want to know which method below I should use to optimise my investment.

1) set it up like a normal tenancy agreement, receive rent to my bank account, and claim it on my tax return. Note, I can claim tax credits as I am working overseas and a non resident.

2) let them live in it for ‘free’, or alternatively ask for a cash in hand payment, and there will be no need to claim tax.

I have been told to consider option 2, however feel that this method is “too shady” and worried i am missing the bigger picture. Don't want to get into any trouble.

Any feedback would be greatly appreciated.

Cheers

 

Who is telling you to consider option 2?

How would you claim deductions for repairs and interest if you have no rent coming in, are you actually renting the property out or allowing your family to live in your house.
I believe the ATO needs market rent (or close to) to be charged for interest/repairs to be deductible.

My opinion is to have a lease agreement in place.

 

If you let a family member live in a house for free: that is what families do for each other. It is not shady.

The cost of owning the property is not tax deductible as those costs are not connected with generating income (it might form part of the tax purchase price of the property).

if anything “option 1” is probably more contentious because you have to prove the relationship and the bona fides to enjoy the tax deduction. Quite often the option 1 examples are completely fake and option 2 is what is really going on - giving a family member free accomodation.

 

There are valid reasons for each options.

Everything really depends on the family members and why they want to move in.

Option 1 is for my family.....

1, rented out via a PM (so rent is paid, maintenance is done, it's claimable and legally I can kick them out "when" they eventually stuff up !).

2, is for family who can be trusted, they will look after the place, pay a reduced rent to cover outgoings and leave when you return/sell.

3, sell now with no CGT and put the funds into shares/lic's/eft's other so the dollars continue to work for you without the holding issue's of property

 

A no brainer IMHO ...

 

Can it be sold CGT free?

 

If you can't/don't want to sell, make sure that you have set them up on a lease otherwise if there is a family dispute you will have difficulty in getting them out.

Who will be handling/paying the outgoings (rates, water, land tax, insurances, maintenance)?

 

Good point Terry
@Lucky86 has it always been an IP ?
How long has it been held, and how long has it been rented out for ?
Or was it your previous residential address and you have snce moved oversea's?
(Possible use of the 6 year rule for cgt ?)

All the above will help to determine a strategy moving forward

 

Are you planning on returning one day?
I read in the Media that people selling while living overseas have pay CGT on entire price or something. Didn't play much attention as not applying to me. Apparently lots of houses have been put on market for sale before mid year.

Thousands of Australian expats face tax slug

 

If you rent to family via a PM - tell the PM not to do inspections. Learnt that when mum was not impressed with a 20 yr old poking thru the place. Was embarrasing as it made my decision to use a PM look pedantic, rather than trying to keep the tax man happy.

Actually I recommend no. 3 as well

 

No need to use a pm just to keep tax man happy. It makes no difference but you will lose about 8% of your income