Tax implications when your boyfriend pays you rent on your PPR

Discussion in 'Accounting & Tax' started by fcr, 24th Aug, 2017.

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  1. fcr

    fcr Member

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    Hello,

    I am wondering if anyone has strategies or personal experiences that would apply to my situation.

    My boyfriend and I have been living together for over 12 months (renting) and we split costs. We have not combined our finances but expect to do so one day. We're just not quite there yet. I am going to buy a house in my own name and my boyfriend will pay me rent. (Meanwhile he has recently bought a couple of IPs.)

    What are the tax implications?

    1. Do I have any choice about whether the rent I receive from him is added to my assessable income? Given that he's basically my de-facto?

    2. If I do have any choice about it, which scenario is better?

    I've done a little research and it appears that in the "declaring" scenario, I could claim all the usual deductions that you would on an IP (but only a percentage of them, according to how much rent he pays). In the first year, at current interest rates, I reckon the two scenarios would come out roughly equal. But the more of the loan I pay off (and I intend to pay it off aggressively for the first few years), the less appealing the "declaring" scenario becomes, because I'm paying less interest on the loan so I can't deduct as much. Then again, as interest rates rise, the "declaring" scenario becomes pretty sweet for me, because I have a much larger deduction.

    Will the ATO see this as a tax dodge, given that as the years go on we will have been living together for ages and we will well and truly be de-factos? However, if I am required to add the rent he pays to my assessable income, then of course I will want to claim all allowable deductions!

    Then there will also be capital gains tax implications. Is there any way of avoiding that? It seems a bit crazy to pay CGT given that the place will be genuinely my home from day 1.

    Also land tax. In what circumstances do I have to pay that, and can I legally avoid it?

    Thank you in advance for any insights.
     
  2. Terry_w

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

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    There is a presumption at law that spouses do not intend to contract with each other unless there is evidence to the contrary. Charging him rent would probably show you intend to enter legal relations. Therefore the rent is assessable income and you will be taxed on it and will lose the main residence CGT exemption.


    Why not just charge him board and get him to buy the groceries and mow the lawn, vacuum the carpet.
     
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  3. neK

    neK Well-Known Member

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    @Terry_w Would paying board / getting. Groceries help a break situation where the other party attempts to claim half?
     
  4. Terry_w

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

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    no
     
  5. fcr

    fcr Member

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    So can we just call it "board" and keep it simple, or would the ATO see THAT as a tax dodge? Would it mean I can't charge him as much?

    I have this idea that board is a smaller amount of money, and it's more to cover meals and utilities?
     
  6. Terry_w

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

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    No you can't call rent board. But if you only charge him for his share of the electricity etc it will be board
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    This sounds like a private domestic arrangement. Not rent and not board. He may be meeting a share of costs but thats what spouses do.....

    CGT? I think you misunderstand. Your property is exempt.
     
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  8. fcr

    fcr Member

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    Thanks Terry. Unfortunately this would not work at all for us because the cost of electricity etc is negligible compared to his intended contribution.
     
  9. fcr

    fcr Member

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    Yes this is what I think too. That is our situation. I just wan't sure if the ATO would recognise that, or whether I would get in trouble for not paying tax on his contribution.
     
  10. Terry_w

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

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    Are you charging him rent or is it a domestic arrangement?
     
  11. fcr

    fcr Member

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    To me it's a domestic arrangement. If the ATO agrees then I'm happy. I wouldn't have him sign a lease or anything like that (other than if necessary because of these issues we are talking about). And we wouldn't determine the amount by the market rent.

    It's money he's paying me in the above circumstances. I just don't know what to call it or what the ATO calls it.
     
  12. jprops

    jprops Well-Known Member

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    As long as he doesn't deposit funds into your account with the description "rent", you shouldn't have an issue.
     
  13. Terry_w

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

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    Don't call it rent!
     
  14. fcr

    fcr Member

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    Ok I think that clears things up. Thanks everyone!
     
  15. skater

    skater Well-Known Member

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    He can pay you whatever amount the two of you decide on, in a domestic agreement. It won't get reported to the ATO as rent, unless you report it....or you tell other people that it's rent & they report it. It's a normal living arrangement where the two parties have not combined their incomes.
     
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  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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