Could some please clarify to me that if it is possible to rent a property to a relative e.g. Borther, Sister, etc., and still claim the relevant Tax deductions or does ATO not allow renting properties to relatives?
Property will be rented at market rate.
Logically I do not see an issue wth it but thought still clarify it.
Thanks in advane
RG435elkamMember@elkamPost count: 722
I have been renting one of my IPs to my sister and her husband for several years and claiming all the relevant deductions. If you rent at market rate you should have no problems with the ATO.
ElkaTerrywParticipant@TerrywPost count: 14,978
It should not matter as long as you are charging market rates. Maybe you should protect yourself by gathering evidence of market rates at the time of renting in case the ATO comes a knocking.
Thank you Elka & Terryw for your prompt response for clarifying my question.
RG435Scott No MatesParticipant@Scott-No-MatesPost count: 3,792
For your own protection (and for the family's sake/sanity) – prepare a standard residential lease agreement. It will not matter to the ATO if you have a lease or not but the dept of fair trading will. It will also serve to protect your rights if you ever want to have them leave the house in the future (they may not be as nice as they are today) – by all means, you can allow the lease to be very short and allow them monthly tenure beyond that time but the legal protections available to both parties will continue.jamo.dMember@jamo.dPost count: 13
I can remember back when I rented my first investment property to my brother.
Due to the time of year that I started renting and the income tax I was paying $30,000 + per year at the time, the following happened, I thought all my Christmas's had come at once.
$160.00 a week repayments at 9.25% around 1995
$120.00 a week rent
$150.00 back in my pay each week after 221D form submitted
$110.00 in front gross before expenses.
We had the property managed through a local real estate to cover all bases.
He was sent 14 eviction notices, should have been 15 but we did not send one on his birthday.
EVERYONE warned me not to rent to a relative, live and learn. But it can work well for all parties.
With relatives it can be a challenge to take things professionally instead of personally.
J.Ddarian1179Member@darian1179Post count: 5
I'm thinking of renting my property to my brother, and would like to know what the ATO look for to prove you are renting it to him. Do we need to show transaction records, lease agreements if they ever do an audit?
darian1179elkamMember@elkamPost count: 722
I've been renting to my sister and her husband for several years. I have never had a lease with her and I do the management of this IP myself to save PM fees.
Each month her husband just transfers the rent into my account clearly marked as rent for this address.
I have never been audited so I can't guarantee that the ATO would be happy with this proof but my accountant is so I assume he knows what he is doing.
I have a close relationship with my sister and her great husband so this works fine but I can imagine that it has potential for family problems.
Hope this helps
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