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  • Profile photo of Tasman PropertyTasman Property
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    Right! I’ve done a search on the forum and couldn’t come up with the answer… and I know there was a recent post similar to this (that ended up discussing a completely different topic [xx(])

    Has anyone had experience or insight into renting a home that is actually owned by you (through a trust or whatever) as if it were an arms length arrangement. i.e. you pay market rent (to your own trust) through a property manager probably…

    The benefit being that you control an investment property, receive rental income etc… AND you have a really understanding landlord [:D]

    Can this be done? I think it could be – but what do I need to be aware of to make it all above board?

    And most importantly, can I send myself 2 movie tickets each month as part of ‘premium tenant plan’ and claim it as a tax deduction?? [;)]

    Profile photo of hwd007hwd007
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    I’m told you need a trust arrangement

    Profile photo of willrogerswillrogers
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    But is worth while putting a bit more thought into.

    Will

    “Live your life so you wouldnt be afraid to sell your parrot to the town gossip”

    quote:


    How about renting it to your dog or cat ? or Gold Fish ?

    Better still give it to your dog or cat and have them leave it to you in their will. In the mean time you can rent it from them. You can be their trustee.

    Some how I doubt the tax dept would go for it.


    Profile photo of NessieNessie
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    Hi Tas Investor

    You are right. There was a post on this topic because I remember contributing an answer. I’ll be damned if can find it either, but I will keep looking.

    The answer I gave before was along the lines of:
    Yes, you can rent from your own Trust. I have been doing it for nearly 15 years. My Accountant set it up. You should discuss this with your accountant. As for the movie tickets well I’m not sure on this.

    Profile photo of ADAD
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    I’m with Nessie on this one (Clever lady there.)

    You certainly can rent from trust after all it is another entity. Why involve the property manager. If you can show reasonable rent then why throw money away. I don’t think you are going to default on yourself ??

    Have a chat with your accountant and they can weave their magic…..

    Enjoy
    AD [:0)]
    (Andrew)

    “Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.”

    Profile photo of SooshieSooshie
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    Hi there,

    I found this post
    https://www.propertyinvesting.com/forum/topic.asp?TOPIC_ID=1247
    The Author was mh1524 and it’s on page 29 (Archives) in the General Discussion forum

    I hope this is the one you are looking for.

    Cheers
    Sooshie [:)]

    “Giving is a Blessing, receiving is the bonus”

    Profile photo of caz_in_perthcaz_in_perth
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    I’ve been thinking about this too.

    Can I rent a property to my defacto and then live in it too?

    The property has been tenated for the last 12 months and they have indicated they want to move and I want to do some improvements to it so it could be kind of handy :)

    Profile photo of caz_in_perthcaz_in_perth
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    I’ve been thinking about this too.

    Can I rent a property to my defacto and then live in it too?

    The property has been tenated for the last 12 months and they have indicated they want to move and I want to do some improvements to it so it could be kind of handy :)

    Profile photo of hwd007hwd007
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    if you live with your defacto in a defacto relationship, then I suspect she would loose her tenant status and you would loose your landlord status. But seek tax departments opinion and I suspect they would say its a tax dodge.

    Now on this trust issue what is the point of this type of trust ? Seems to me its just a way to aviod tax.

    What is the moral argument for setting up a trust of this type ? if indeed there is one at all.

    I would just like to know. Nothing more.

    Profile photo of comdomcomdom
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    Hi all,

    Strange as this may seem but can someone eplain the benifits apart from owning a invstment property?

    Profile photo of hwd007hwd007
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    Capital Growth, cost of owership, return on investment, tax benefits and more

    Profile photo of LeighLeigh
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    Do the benifits out way the negatives?

    If you rent your PPOR it would be classified as an IP. Therefor you can calim expenses and depreciation, but if you decide to sell the property at anytime down the track you will be subject to capital gains tax you otherwide would’ve avoided. This could be quite substantial if the property has increased in value significantly.

    There is nothing wrong or immoral about tax minimisation, but is this viewed as minimisation or avoidance by the ATO? Fine line. If it’s legal and has moral justification though then it’s our right as tax paying citizens to minimise our tax (otherwise we’re actually paying too much!).

    I’ve heard of a story where 2 investors teamed together to get around the ATO’s view on renting your own property. They simply bought the property each other wanted to live in and rented from their mate [8D].


    “If you can count your money, you don’t have a billion dollars”
    J. Paul Getty


    Profile photo of hwd007hwd007
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    I thought you only paid CG tax on the period in which your property was an investment property. i.e. if it was previously PPOR then that period of growth is exempt.

    hey love that story about the two mates !

    Profile photo of LeighLeigh
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    quote:


    I thought you only paid CG tax on the period in which your property was an investment property. i.e. if it was previously PPOR then that period of growth is exempt.


    True. I guess it depends how long you’ve owned it as a PPOR, and how long you think you’ll continue to live there once you turn it into an IP as to how much CG could be expected.

    Profile photo of hwd007hwd007
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    I just spoke to a real estate agent who valued my PPOR and he also suggested I rent it to myself. When I said through a trust you mean ? he said yes thats right.

    So now I’m getting curious and have some questions as follows;

    1. Is this just a tax dodge or something ?

    2. How expensive is it to set up your PPOR as a trust and rent it from yourself.

    3. What are the bennefits of this ?

    thanx

    Profile photo of Tasman PropertyTasman Property
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    Thanks everyone.

    Hwd007 – I must admit I was initially thinking along the lines of buying a NEW IP through a trust and then renting it. So the benefit is simply another investment property, but with me as the tenant = the easiest investment property you will own, and no dead money with me renting a home from someone else. Its not meant to be a tax dodge, I would still have the investment property rented to someone else regardless.

    I think that’s the key argument here. If it were about suddenly renting your own existing PPOR to yourself and claiming you had ‘created’ a new investment property the ATO may raise their eyebrows.

    I do like the idea that you could transfer your PPOR CGT free though – I hadn’t thought of that M+K.

    Thanks AD (and M+K) for the no rental manager idea too, but I think it would be easier to defend from ATO point of view if the deal were set up exactly the same as other IPs (all mine are through a manager). Otherwise the ATO could say “uh uh – not at arms length matey”. I will discuss further with my accountant to clarify.

    Oh, and the whole argument assumes you are already planning to set up a trust for your property investing, or have one already. Wouldnt be worthwhile just for this one idea.

    Profile photo of hwd007hwd007
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    Tas re; converting your PPOR to IP through a trust and renting it yourself.

    More intriguing with each post indeed.

    What if you fail to pay the rent ? could you get kicked out ? hehe ! would you loose your bond if you trashed the place ?

    More seriously, what about insurance claims on accidental damage ? I guess that would be the same as a normal claim.

    On another note, so effectively how I see it is that you are simply converting your PPOR into an IP and renting it back from yourself, which as you indicated you would be renting out anyway, so its a legitimate IP

    I can see a potential draw back here in some situations. Say I can get $180 a week if I rent out my PPOR as an Ip to a third party. But if I rent it myself as a trust, I only pay $130 per week which is my weekly repayments on my loan.

    One would clearly have to do the numbers on both scenarios. i.e. live in as a trust or rent out to third party and rent yourself.

    In this situation could it be argued that the trust is not as cost effective as me renting it out. Clearly I guess that depends on then what it costs me to rent out another property to live in.

    On the other hand operating as a trust could mean I can delay certain repairs that I would otherwise make if I wanted to get the $180 a week if rented to a third party.

    So clearly to me it seems a trust may not always be the most cost effective solution. I would hesitate to say that a brand new IP may not always perform as well if you rented it out to yourself, as opposed to renting it out to a third party.

    For one as its brand new, there are no savings to be made by delaying repairs as there is nothing to repair.

    Also, as mentioned, on a brand new IP your repayments may not reflect the rent you may otherwise get from a third party. i.e. it may be much less than the rent you could get. Thus you may be getting a lower ROI unless of course you made a point of paying market price rent into your trust arrangement. But as it’s your own money, this seems hard to conceive.

    Also with a trust, aren’t you being double taxed on your income with a trust? I mean I pay PAYG income tax and then use some of that income to pay rent into the trust and being trustee the rent paid by my income is also taxable ?

    Much to learn.
    cheers

    Profile photo of LeighLeigh
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    quote:


    Also with a trust, aren’t you being double taxed on your income with a trust? I mean I pay PAYG income tax and then use some of that income to pay rent into the trust and being trustee the rent paid by my income is also taxable ?


    Unless it’s negitive geared, then you may even get a tax deduction against your personal income (depending on how you’ve set it all up) meaning that the rent you are paying is partly tax free income [?]


    “If you can count your money, you don’t have a billion dollars”
    J. Paul Getty


    Profile photo of hwd007hwd007
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    hmm in that case it makes sense to pay as little rent as possible, don’t it ? i.e. at the lowest end of the market price. This way your maximise your loss and thus tax benefit.

    Profile photo of paulthemagnetpaulthemagnet
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    logically true, but here where you start to get trouble with ATO by paying lowest rent. They might argue against it. Whatever the case may be under a trust structure, there are a lot of benefits by renting back to you as discussed above.

    Ta, Paul

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