All Topics / Help Needed! / Can I collect rent if I claim the FHBG?

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  • Profile photo of AlextAlext
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    @alext
    Join Date: 2008
    Post Count: 9

    I am planning to buy a unit that is currently tennanted on a monthly renewal. I am eligible to claim the $7k FHBG.

    However I was thinking of making the unit my primary place of residence (*living there)* and retaining the tenant at the same time (ie as a border). Would this automatically disqualify me from obtaining the FHBG?

    I cant see anywhere that states you *can't* rent out a room or two…as long as you are residing in it also for at least 6 months.

    Thanks

    Alex

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    I think you only need to live there to qualify for the grant. Taking a boarder should not matter with the OSR, but it will matter with the tax man. You will lose the CGT free status of your residence – or the part that you rent out.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of StumpCamStumpCam
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    @stumpcam
    Join Date: 2006
    Post Count: 76

    Alex, you can claim the FHBG, but it would be best to do all that through your solicitor to make sure it's all done properly. You can also rent out your PPoR while you are living in it, and still keep your CGT free status for six years. It may be better to start living there by yourself for a month to establish it's credentials as your PPoR, but after that you have six years. All you have to do after that period is kick your boarders out for another month, and it resets again. I used to think the six year rule was only for when you were overseas etc, but I'm told by my accountant that you can still live in it and claim that rule. (You can't have any other property as your PPoR at the same time of course).
     If for example you get two boarders sharing with you, then you can also claim two thirds of the rates and interest as a deduction. You'll have to declare their rent as income of course, but it's probably much in your favour, as it will be net negative in the current climate. You can probably claim proportionate depreciation as well.

    Profile photo of Luke.SLuke.S
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    @luke.s
    Join Date: 2006
    Post Count: 23

    I hear about people that can and can't claim the FHOG all the time.. But it dosen't seem to make any difference.

    I know of quite a lot of people who bought a house for investment and claimed the grant. They have never set foot into it for even 1 night.

    Does any govt people ever even check the details ?? or are they too busy handing out cash ??

    Then there's the story of 6 month old children buying $1mil homes in Sydney and Melb and claiming the grant.

    Interesting, huh..

     

    Profile photo of StumpCamStumpCam
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    @stumpcam
    Join Date: 2006
    Post Count: 76

    Luke, I'm pretty sure you now have to live in it for six months. Some people may get away with not doing that, but I've heard of some having to pay it back , for not conforming to the six month rule.

    Profile photo of AlextAlext
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    @alext
    Join Date: 2008
    Post Count: 9

    Thanks for the replies.  Very helpful. I am thinking now that in order to avoid all this hassle I should simply wait 6 months then rent it out thereafter as a 100% investment property. That way I can still claim the FHBG, achieve 100% CGT exemption when I come to sell in a few years and claim 100% tax offsets after the 6 month period is up.

    CGT exemption is probably the most important point for me long term and I really need to live it in for 3 months to achieve that…so another 3 months to make the 6 aint too bad.

    Profile photo of StumpCamStumpCam
    Member
    @stumpcam
    Join Date: 2006
    Post Count: 76

    That's ok Alex, but remember you can only rent it out for six years with PPoR status, provided you don't have another ppor. You only have to live in for about 1 month to show ppor status. The six months is for the FHBG. You only have to live in it for another month in six years time to reset your ppor status. There's nothing wrong with the sharing concept. That's what I'm trying to get my kids to do. It's ok while they're single, but it's no fun when you're newly married and trying to put up with boarders. (that's what I did for six weeks and it s'd big time!)

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    StumpCam wrote:
    Alex, you can claim the FHBG, but it would be best to do all that through your solicitor to make sure it's all done properly. You can also rent out your PPoR while you are living in it, and still keep your CGT free status for six years. It may be better to start living there by yourself for a month to establish it's credentials as your PPoR, but after that you have six years. All you have to do after that period is kick your boarders out for another month, and it resets again. I used to think the six year rule was only for when you were overseas etc, but I'm told by my accountant that you can still live in it and claim that rule. (You can't have any other property as your PPoR at the same time of course).
    If for example you get two boarders sharing with you, then you can also claim two thirds of the rates and interest as a deduction. You'll have to declare their rent as income of course, but it's probably much in your favour, as it will be net negative in the current climate. You can probably claim proportionate depreciation as well.

    Stumpcam

    I am afraid the 6 year rule only applies if you are absent from your main residence. If you are living in it while renting out part of your house it doesn't apply. see s118-145 ITAA

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of StumpCamStumpCam
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    @stumpcam
    Join Date: 2006
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    Hi Terry, I'm just going off what my accountant has told me:

    "I have tested the Tax Office on quite a few cases and they seem to be happy
    with no need for having to move away etc to get the 6 year rule. With the
    large property value increases in recent times I am always cautious as to
    how they will try and attack CGT, but they seem to be fairly relaxed in the
    6 year rule (at this stage….)."

    I'd like to know for sure though.

    Profile photo of TerrywTerryw
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    @terryw
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    StumpCam wrote:
    Hi Terry, I'm just going off what my accountant has told me:

    "I have tested the Tax Office on quite a few cases and they seem to be happy
    with no need for having to move away etc to get the 6 year rule. With the
    large property value increases in recent times I am always cautious as to
    how they will try and attack CGT, but they seem to be fairly relaxed in the
    6 year rule (at this stage….)."

    I'd like to know for sure though.

    Hi Stumpcam

    I am not sure your accountant is correct. If you look at the legislation, at s118-145 of the ITAA. http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html
    it says .."(1)  If a * dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence…."

    If you are not absent, then this section would not apply.

    But, the ATO does not always apply the law properly.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of StumpCamStumpCam
    Member
    @stumpcam
    Join Date: 2006
    Post Count: 76

    I've just finished reading Noel W's new book on saving tax on your investment property, and he's quite adamant that you need to be absent from your property for the six year rule to apply. Noel states that if you get in boarders in the first six months your PPoR instantly converts to an IP and it loses CGT exemption from that date onwards. He suggests house swapping with a mate afer six months is a good strategy, but it might look a bit obvious to the ATO if you're each in one half of the same duplex (as he suggests).
      I believe that house swapping with a mate is identical to simply moving out of your PPoR, renting it out and renting any other property anywhere for yourself. The latter might save your friendship too!

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    That book is written by Julia Hartman, with a bit of Noel on the side. Julia is excellent on the tax aspects.
    But, with the boarders, this may not be the case. You would be only renting out part of the house – so would only partially lose the CGT exemption.

    And, if they were boarders, paying money for food and expenses, then maybe not CGT or income tax consequences.
    see http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT2167/NAT/ATO/00001 paragraph 17 and 18 – but also 19 which cautions.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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