My next door neighbour is renting the property and ever since they moved in a couple of years ago, they have done some major work on the house eg deck out back, painting, refurbished bathroom and kitchen, put in air conditioners etc. It would seem they have some agreement with the landlord to do refurb for reduced rent. Is this a common thing? What would be the tax and other implications for the owner?
How can you assume that the arrangement is to reduce rent? Tenants with specialised skills ie painting, etc can do work. I've had tenants paint properties and put decks at the back - they were licensed registered trades people and we checked out all their licensing and work. However there was no reduction in rent, they just wanted a nicer, improved property at the advertised price which reflected an unimproved property. The property was rented out at a higher price after they had left due to the improvements.
As a tenant I've painted inside, re siliconed wet area's, and even insulated the ceiling in one place. But, I obtained permission, right down to the wall color, once inspected and happy with the job, the owner reimbursed me for the paint and insulation only. Not for tools or consumables. When we left friends ended up renting the place, rent went up 19%, clearly the landlord liked the job
There's a big spectrum of people out there. Some who need someone to come out for the most basic of things, some who are happy to do things to make it feel like their own home. Quite a few do that without expecting much in return and some do it in exchange for rent reduction. From a tax perspective , I think as a landlord you're better off showing full amount of rent and then paying back the tenant the reduction amount for repairs. This would also mean the tenant would need to declare the income but I doubt they would. The alternative is showing a reduced amount of rent, but ATO is likely to discount the related deductions similarly. If you do this, ensure you have a PM who is familiar with the rules. Tangent for a second - Be careful on the distinction between repairs and improvements. Landlord are legally obligated to perform repairs and keep houses in good order. Improvements are optional, but can be worthwhile in order to attract quality tenants.
This is a reasonably common arrangement, more so privately than with agents. It's fraught with issues because it's very difficult to manage costs, timelines, quality, etc against rent deductions. I've personally not actually seen a single case end well, though I don't doubt there are plenty out there.
I've got a tenant at the moment who asked to re-do all the landscaping. He works as a landscaper and has done a fabulous job. Very happy! Offered to reimburse him for the cost of all the plants, but he said he was happy to do it.
