All Topics / Legal & Accounting / Tax issues around free rent?

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  • Profile photo of DeanCollinsDeanCollins
    Join Date: 2015
    Post Count: 376

    Hey I think the answer is ‘no issue’ but wanted to ask the hive for advice.

    If I have a friend who is down on their luck and needing someone to give them a break…..and we let them move into one of our IP’s rent free for say 6-12 months while they get back on their feet there are no income or capital gains tax issues right?

    eg Australia doesn’t have the same stupid gift tax laws that we have here in the USA.

    Yes i’ll check with our accountant in August but just wondering if someones had this issue before. If it wasn’t totally free and instead I charged peppercorn rents eg $50 a week can I still negative gear or are there some kind of ATO obligations for “market rent” etc?

    Profile photo of Corey BattCorey Batt
    Join Date: 2012
    Post Count: 1,010

    You’re meant to charge market rent, so the ATO can determine that majority % of your interest deductions may be invalid as you’re only charging 20% of market rent etc.

    Corey Batt | Precision Funding
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

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

    There are tax issues.

    There is no issue with gifting money, but if you are not charging rent then you will not be able to claim any deductions on that property at all. If you charge peppercorn rent your deductions would be limited to the amount or rent charged.

    A way around all this may be to gift your friend money and have him pay market rent. Watch out that he doesn’t spend the money and also watch out for bankruptcy issues – seek legal advice.

    But if you don’t claim interest etc now, you will be able to claim against CGT when you sell.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide)

    Profile photo of DeanCollinsDeanCollins
    Join Date: 2015
    Post Count: 376

    Thanks all, appreciate the advice.

Viewing 4 posts - 1 through 4 (of 4 total)

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