Mother’s home and retirement planning

My mum owns a 4 bedroom house in Melbourne suburbia which she hung on to when my parents split up a few years back. There is a very small mortgage attached which she could refinance to access substancial equity. She is living in one of the bedrooms and renting out the other 3 to students from a local uni.

In the short term, provided she claims the rental income for tax purposes, Is she entitled to tax deductions on a portion of the usual things, interest payments on the mortgage, council rates and other outgoings, any necessary repairs to the property etc? If so, how is this portion calculated, is it as simple as 75% because that’s the portion of the property she is effectively using for income producing purposes?

For the long term… Mum has the equivalent of a HECTS debt overseas, and if her taxable income reaches a certain point she will have to make what I would consider unreasonably large repayments (the system is different over there). She would also not be entitled to her overseas equivalent to superannuation, which is an issue since she worked there for 25 years. I am therefore looking for alternative ways to structure her finances so that this can be avoided.

One idea I had (don’t freak, I wouldn’t just go and do this without getting the right professional advise) was for her to refinance her home and if possible get the tax deductions from interest payments and the rest to offset some of the income she recieves from the students living there. The available capital could then be used to buy a second (small and cheap) investment property through a hybrid trust, whereby she could negative gear by owning the corresponding units in the trust etc. This should keep her taxable income below the threshold for now. By the time she stopped working (at least 10 years from now) she would have paid off a portion of both loans and the idea then would be to refinance or redraw on the home loan once more and pay out the investment property, at least to the point where it was providing substantial positive cash flow. The deductions from the interest payments on the home should keep her income from the renting students below the threshold for the superannuation and HECTS debt, and the income from the investment property could be distributed through the discretionary element of the trust to me or my sister if necessary (who could negative gear it by other means perhaps).

The end result would be that by retirement we essentially help her keep her taxable income below the threshold by ‘paying her tax for her’ so that she can recieve her superannuation from overseas and not get ripped off by their HECTS system. It would also provide an effective savings plan for her while she is still working.

I know this is a fancy plan and I’m just a beginner in real estate myself, but I would really like to know if this sounds viable to someone with experience of this sort of planning. You guys are guns and I’ve read a lot of posts here so I really respect your oppinions. If my ideas are up the wall I would appreciate any other suggestions that might point me in the right direction.

Thanks,
Carl