Tax implications of buying IP with gifted money from parents

Hi,
After some advice on tax implications of following example.

- Retired parents gift us $500K and we take out a loan for $500K and buy an IP for $1 Million.

- Parents then live in the property and pay market rate rent to us.

- We pay parents a weekly living allowance that would be equivalent to the interest on an IO loan on the $500K they gifted us.

- Is the above situation all above board?

An alternative, would we buy the property with 50% ownership. We then just split costs/losses by 50% when working out tax.

TIA

 

Check Centrelink effect of deprived asset - this will affect any entitlement for 5 years for your parents.
Marg

 

I suggest both of you get separate legal advice.

It would probably be better for your in the long run if they did not gift you the money, but loaned it to you, with an appropriate plan in place.

see
Legal Tip 12 Parents Helping Adult Children Legal tipe 12: Parents Helping Adult Children

Legal Tip 25 Children helping parents out Legal Tip 25: Children helping parents out

 

Also consider if th parents owned they would get the CGT exemption if it was their main residence. You might want to lend them money.

 

Best to seek advice from someone who is qualified to give it

Sounds like you're wanting to pass off the $500k loan (from parents) as a gift. In terms of future implications...many lenders will want to see 6 months of statements from your transaction/savings account when you apply for a new loan, refinance or top up. They'll be more than a little curious if they see a regular repayment that looks distinctly like an IO repayment on half a mil.

 

Thanks for the replies all.

I will definitely seek some professional advice on the best way to do this.

I am thinking it might just be easier if we go halves in the property ie. parents don't loan us the money but we just own the property 50/50.

The only reason I was looking at parents loaning us the money and then we buy the IP property in our name was so that we could then pay off our mortgage on our own PPOR, and hence have all our dept on the IP which would be better for tax right?

But maybe the benefits of transferring our debt from PPOR to IP would be outweighed by possible CGT exemptions anyway.

I don't think our parents will be on a pension so I don't think that comes into play.

 

If your parents occupy the premises Part IVA could apply to this arrangement as it has elements of a scheme.

 

If your parents gift you money, or lend you money at no interest then it may work out better for you to pay off your PPOR and then reborrow to buy the investment.

It may also be better to have the parents buy the property instead of you because it will be CGT free in that case. They may even leave it to you in their wills.