We are currently on a temporary transfer from NSW to WA for my husband's work. As part of his relocation package my hubby receives a living away from home allowance (LAFHA) to subsidise our accommodation costs. The LAFHA covers a large percentage of our current rent…the lease is in our personal names and we pay any shortfall. There is now a likelihood that my husband's employer would consider signing a lease on our behalf and paying the full rent in lieu of the LAFHA. By doing this we could buy a house in a trust, the company would sign the lease and pay the rent (fair market value). We would be the tenants. On paper this would make the house an IP with all related deductions, but it would be owned by our own trust. Is this acceptable to the ATO? And do the figures stack up in our favour even if there are losses trapped in the trust?
By way of some background info…Our last PPOR in NSW is currently an IP (we will be transferred back to NSW in 2-4 years), so we are highly likely to apply our main residence exemption for CGT to this property in the future. The WA property we purchase would ultimately become an IP when we are transferred back to NSW. Hubby is a salaried employee with a high income, I am a low income earner. We do not have any businesses or other sources from which we could divert profits to offset any losses trapped in the trust. Any advice greatly appreciated.
Thanks
AngelaFrom memory (and it's several years since I looked at this issue and then I was looking at the issue of remote housing benefits) there is a determination or ruling (possibly a PBR) that states that in these circumstances the employer would lose the exemption on Fringe Benefits Tax. The isue possibly is that you the employee are an associated person with the landlord (the trust).
If your trust will make losses why do this anyway?
Since your husband is getting a presumably tax-free LAFHA which is subsidising most of your accommodation costs it may make better financial sense if you are interested in property investing to look to purchase somewhere else rather than in your particular location in WA
There are a few tax rulings and private binding rulings on renting from your own trust. Search for PBR83291 for one positive one.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the replies. Would anyone be able to help with me how best to search for PBRs or determinations on this topic? I have been on the ATO website (including the legal database) and haven't managed to find much on point.
I did manage to find PBR 83291 (thanks terryw). In this case the applicant was a beneficiary & trustee of a trust that owned an IP. However, the IP was purchased years earlier and had been used as a rental to unrelated parties already. In our case we would be the first tenants whilst also retaining our NSW PPOR. Plus the company would be on the lease.
crj wrote:…there is a determination or ruling (possibly a PBR) that states that in these circumstances the employer would lose the exemption on Fringe Benefits Tax. The isue possibly is that you the employee are an associated person with the landlord (the trust).crj – thanks for raising this point, I will definitely need to check on the FBT implications. I haven't been able to find this ruling so far, but will keep searching. Do you know any other details that might help my search?
crj wrote:If your trust will make losses why do this anyway?We are still crunching the numbers, but essentially it means that the company would be paying ~$20K+ (rent) towards a property that we owned, rather than towards another landlords IP. Also we are in the market for an IP and it gives us somewhere to live with the likelihood of benefitting from future capital growth, guaranteed nil vacancy rate and excellent tenants.
Any IP we buy will be negatively geared regardless (at least for the first few years), hence the loss. We are also considering whether investing interstate (say Sydney or Melb) might still be more beneficial overall
crj wrote:Since your husband is getting a presumably tax-free LAFHA which is subsidising most of your accommodation costs….This is correct.
crj wrote:…it may make better financial sense if you are interested in property investing to look to purchase somewhere else rather than in your particular location in WA.Actually this is the decision we are trying to make:
– Do we keep renting and receiving a LAFHA, and invest interstate due to better current prospects than WA market (say in Syd or Melb);
– or do we buy an IP in WA via a trust, thus converting the LAFHA dollars into company paid rent on an IP that we would control?
Angela
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