Rent from yourself

Hi All,
So we all know that paying off your PPOR is a bad investment decision as payments and costs etc are non tax deductible. What about buying it in a company name (that you are a director of) and then renting the property from your own company?
Is that possible?
What considerations are worthwhile?

 

I disagree with your premise. I haven't had a mortgage for decades nor been exposed to debt, but let's say your PPOR interest rate is 6% and assume you're in the top tax rate. Paying off a slice of capital from your PPOR is equivalent to a pre-tax return of 12% -- guaranteed. Risk free.

If I could put my money into something that returned 12% before tax with absolutely no risk, I'd leap at it. In my book, there is no better investment than paying off your PPOR.

In any event, interposing a family investment company as you propose will increase the amount of capital gain tax you pay if/when you sell, and attract a less favourable rate of interest on your mortgage.

I'm sure there's plenty of people who will disagree with my disagreement.

 

Hi Dezz,

I would talk to your accountant and be very careful before embarking on a strategy of purchasing the property in a company and then renting from yourself. I have helped a client who did this many years ago on the advice of a 'friend'. The result was a property that had to pay land tax every year and was subject to a huge capital gains tax obligation if he sold it.

Your accountant should be able to go through the pro's and con's and if not . find a better accountant.

Best of luck with your investing.

 

Loss of CGT free status, potential land tax and you'd want to check that the ATO won't put it under their catch all of it being a 'scheme/strategy primarily setup to minimise tax'.

You see these funny questions a lot, generally not worth it otherwise every man and his dog would be doing it.

 

Definitely talk to your accountant, doesn't really sound like the best way to do things to me either.

 

I had a client the other day who had done this - and regrets it now.

Loss of CGT main residence exemption status,
land tax on this property (in NSW, threshold applies),
Positive income will mean tax payable
30% CGT when sold instead of 25%
Franking credits reduced because of depreciation
Corporations Law!

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