Join Australia's most dynamic and respected property investment community

Tax implications of buying IP with gifted money from parents

Discussion in 'Accounting & Tax' started by wire_tiger, 3rd Apr, 2016.

  1. wire_tiger

    wire_tiger New Member

    Joined:
    3rd Apr, 2016
    Posts:
    2
    Location:
    Sydney
    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
     
  2. Marg4000

    Marg4000 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    937
    Location:
    Qld
    Check Centrelink effect of deprived asset - this will affect any entitlement for 5 years for your parents.
    Marg
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,043
    Location:
    Sydney
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,043
    Location:
    Sydney
    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.
     
  5. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    2,458
    Location:
    Sydney & Gold Coast
    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.
     
  6. wire_tiger

    wire_tiger New Member

    Joined:
    3rd Apr, 2016
    Posts:
    2
    Location:
    Sydney
    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.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    If your parents occupy the premises Part IVA could apply to this arrangement as it has elements of a scheme.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,043
    Location:
    Sydney
    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.