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Renting privately

Discussion in 'Accounting & Tax' started by New Harriet, 3rd Jul, 2015.

  1. New Harriet

    New Harriet New Member

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    Hello,

    New home! New chapter!

    So we are thinking of renting one of our IPs to our adult son. He is at uni, and at the moment has no job. So essentially, we would be giving him cash to pay the rent.

    Is this illegal? Would this pose a problem if we were audited? Would our son need to show proof of earnings? Or would it be enough simply to show deposits from his bank account to our Investment account?

    Thanks in advance,

    Harriet
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    He'd probably qualify for aus study and rent assistance with the circumstances you've described. But some reason he can't get a job?

    You'd need to charge him market level rent in order to maintain the legitimacy of your own income/expense claiming / declaring.
     
  3. New Harriet

    New Harriet New Member

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    He will get a job after an operation he's having in August. BUt even then, I would have to top him up in cash to meet market rent.
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Whether you give your family members cash is none of our concern ;);)
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    this is legal.
     
  6. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Renting to family members covered by IT 2167 http://law.ato.gov.au/atolaw/view.htm?DocID=ITR/IT2167/NAT/ATO/00001

    13. Where property is let to relatives the essential question for decision is whether the arrangements are consistent with normal commercial practices in this area. If they are, the owner of the property would be treated no differently for income tax purpose from any other owner in a comparable arms length situation.

    Would you normally provide money to your tenants to assist in paying their bills ? Read IT 2167 carefully. Facts are important.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You wouldn't give tenants money, but you would give children money from time to time. I don't think the ATO would apply Part IVA, but it is a possibility. But the taxpayer would argue that even if the children were renting next door they would still gift to them to help with living costs.

    The gifting is discretionary while the rent is contractual. Seek tax advice and make sure there is a written lease and rent paid.
     
  8. New Harriet

    New Harriet New Member

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    Terry, what is Part IVA?

    Thanks.
     
  9. Scott No Mates

    Scott No Mates Well-Known Member

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    Iva comes before Ivan AFAIK
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Thats the part of the tax act which allows the commissioner to deny deductions of they are schemes with the dominant purpose of avoiding tax.