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Renting from related entities

Discussion in 'Accounting & Tax' started by Blacky, 21st Nov, 2015.

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  1. Blacky

    Blacky Well-Known Member

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    We were talking property a while back and someone posed the following question,

    If I have an entity (lets call it a company with trust) which purchases an investment property. The property is rented for a couple of years - and then, for what ever reason, I decide to make it my PPOR.
    However, I cant claim it as my PPOR, as I dont own it - The co/trust does.
    Can I rent it from my own company (at market rates) and still claim the property expenses legitimately through the company/trust?

    From a net position, there may not be any real benifit in doing this. However, if the property is not available for rent - unless I am mistaken - you cant claim any expenses on it at all.
    Would there be any benifit in doing so?
    Is this legal/legitmate?

    I know 'related entities' can have commercial arrangements (usually in relation to renting commercial property to each other). Would this be any different.

    Cheers

    Blacky

    *for clarity I am not considering doing this. It was just a question someone asked and I didnt know the answer.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it can be done. The trustee should take care not to breach their powers by making sure the deed allows it.

    I have written a legal tip about a beneficiary living in a trust property.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Take care. There is a tax case called Janmoor which concerns a trust doing this. In Janmoor the taxpayer was given the green light. However its a decision that the ATO has never agreed with and has not later supported the decision.

    I would suggest that Part IVA could definitely be a concern and for this reason obtaining personal advice before acting is very important.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Yes. There are inconsistencies galore.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I think have have a consistency with those setting up unit trusts and borrowing to buy the units with related parties living in the property and the unit holder claiming the interest. The ATO view this as a private expense and will deny the interest deduction.

    Where an individual beneficiary is living in a property owned by the trustee of a discretionary trust and the rent being charged is at arms length then I don't think I have seen any ATO PBR denying the deduction - but I haven't been specifically looking. When I do come across them I record the PBR numbers and so far all good.