A bit of a long winded question
Basically my father currently has a house which has 150K still owing on
it at $900 repayments per month. At his age with his current salary with
this amount still owing, he will not pay this off before retirement. He
also still has my 18 year old brother living with him who frankly will
never move out of home and never have children.He has offered to basically give my wife and I my share of the house
early in order to keep the house and to provide the opportunity to let
my 2 girls grow up in a nice area without the burden of renting (he also
has sentimental attachment to the house).The arrangements would see us 'rent' the house at the proper market
value so that the mortgage gets paid off in much less time. When the
house is paid off, it would be transferred into my ownership with me
then using it to take out a mortgage to buy out my brothers share, which
would see him and my father in their own place (in their name) by the
time my father retires. However he wants to minimise any damage through
taxes whilst still gaining the benefits of renting his house out as an
investment property, which begs a number of questions* My father wants us to pay a minimum rent (say $50 a week) to
avoid him getting overly taxed on rent income with us paying the rest
directly into his mortgage account or cash in hand so he can put it into
the mortgage account, is this possible?* He wants to maintain a formal rental agreement so he can use the
place as investment property purposes while we are in there, basically
it has become very run down and needs a lot of work which through our
contacts we can virtually do for free in terms of labour whilst giving
him the receipts for tax return purposes (this advantages him by adding
value to the property so that when it comes time to buy out my brothers
share it will be a greater value), can he do this still charging $50 a
week rent?
* Is there any way of us getting a first home owners grant during
this process?
* Is there any advantage for us when we go to buy out my brothers
share of us buying them a place as an investment property (say a $300k
unit or townhouse) or best just to hand over the money and tell them to
buy a place with my brother getting the first home buyers grant?
* And is their ownership transfer an easy process?Thank you for any help!!
Sounds like a scheme to defraud the ATO to me!
There are many issues to consider. Firstly it is an arrangement by related parties so will be scrutinised more closely during an audit.
– You must pay market rent to your dad if he wants to claim the interest.
– Stamp duty considerations on the transfer of title
– CGT for your dad when the transfer is done
– Income and CG's effect on your dad's pension if and when he applies
– If you qualify for the FHOG you could possibly avoid stamp duty and get the grant when you transfer title – but all people on title need to qualify.
– Names on title will need to be names on the loan.
– Ownership transfer is not that easy. You may need a solicitor to do it. You will need to change loans at this time as wellTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Agree with Terry ………..Messy..messy …. and there are a lot of assumption and blanks
Expanding on the pension angle as this is very likely to impact …… We assume your dad is 5 years to retirement age and looking at some kind of pension as income????
Transferring title near retirement can be seen by Centrelink as him disposing / gifting of an asset and/or deception on their aged pension income & assets tests resulting in a reduction or no pension at all.This can then lead to you and your dad having to argue with them on points of equity as you invested money to add value to the property etc but somehow he got the receipts /tax benefits not you and it could go on and on……….and don’t even think you can claim that the rent as part of your equity…. lol
Centrelink’s pensions view points are quiet clear and blurred cases are well documented in the courts. You just don’t want to go there.
Consider the impact on your families if at the end dad had no pension or income?
Sounds very complicated and you will have a lot of explaining to Centrelink.
Why doesn’t you dad just sell you the house under vendor terms?
You can pay off the house and later you will have the deposit and equity in the house to apply for a loan.Dazz
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