Tax benefits of renting out granny flat in higher income phase of career

Discussion in 'Accounting & Tax' started by samosan, 27th Oct, 2019.

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  1. samosan

    samosan Member

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    Hi all,

    I was working through a test scenario of buying a $2.1 property as a PPOR, and renting out 1/3 (one floor) for a long term let, plus perhaps 1/6 (one upstairs room) as an AirBnB let. Mortgage would be $1.1m at 3.29%. Prospect is in mid-late career stage, employed with marginal income tax at highest rate.

    It struck me while doing this that it might be advantageous to do this in your peak earning potential, as you can then deduct tax at the higher rate for apportioned mortgage interest repayments. which would themselves be large to start with. In the example above, in the early years the interest would be $3000 per month, so approx (33% * $1500 = $500) tax deductions, plus some deductions for the AirBnB.

    If you then downsize and sell closer to retirement, assuming a lower band income tax rate, the CGT due on the revenue-producting portion would be lower, plus the 50% discount.

    Is this effect of deferring tax burden to the point when you're in a lower tax bracket ever practised, or is it a fairly insignificant effect?

    Thanks!


    Sam
     
  2. Ross Forrester

    Ross Forrester Well-Known Member

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    You might qualify for the small business cgt concessions when you sell it.

    so it might have no tax at the end.
     
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  3. Trainee

    Trainee Well-Known Member

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    Or just buy a cheaper ppor and an ip? Renting out 1/2 of the ppor seems very intrusive. Besides whether its legal or practical (second kitchen? Separate entrance?).
     
  4. samosan

    samosan Member

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    Our thoughts are that it gives us flexibility for the future - eg. move into it ourselves and rent out upstairs, actually accommodate our grannies in it at some point, etc.

    We've rented out a property before, and we weren't great at it in terms of finding time to manage it; we hope having it physically co-located will help with that.
     
  5. ttn

    ttn Well-Known Member

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    Do not know if workable or not but what if buy an IP and rent the property back to you? Sure there will be CGT but there will be benefits until sold off or convert to PPOR
     
  6. Trainee

    Trainee Well-Known Member

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    How do you rent to yourself?
     
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  7. ttn

    ttn Well-Known Member

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    Like the normal process where you engage a RE company and put in the rent application :D and select the one :p
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You cannot contract with yourself and even if you could there would be no advantage.
     
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  9. Ross Forrester

    Ross Forrester Well-Known Member

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    Possible no cgt
     
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