Is It Legal to Lease Investment Property to Family Members or Ex Partner?

tooblue on 10/03/2022 - 02:01
Last edited 10/03/2022 - 17:02

Family members include parents, children, siblings. IP is negative geared.

From ATO perspective: Tenants pay rent, landlord pays tax on the rent. I reckon there is no tax avoidance or tax evasion?

From Centrelink perspective: Can tenants claim rental assistance? Does the tenant and landlord's relationship affect the claim? Do they need to disclose the relationship? What if the landlord is paying the tenant child support?

From bank's perspective: Can the landlord use the rent as an income to fund the mortgage, esp. when the landlord is supporting the tenant (aged parents, ex partner) financially?

Another question may be irrelevant: Do children have legal obligations to take adequate care of aged parents in Australia? Is it considered immoral to lease to parents and charge rent?

Financial

Comments

  • Nutrino on 10/03/2022 - 02:06
    +2

    This is above my pay grade…

  • trustnoone on 10/03/2022 - 02:16
    +3

    Would be interested to know this as well. Not exactly what you're looking for (political) but Joe Hockey paid $1,000 a month of tax payer money to rent his wifes home in Canberra at one stage
    https://www.sbs.com.au/news/article/hockey-charging-taxpayer…

  • [Deactivated] on 10/03/2022 - 02:23
    +2

    Another question may be irrelevant: Do children have legal obligations to take adequate care of aged parents in Australia?

    i can't see why they would have any legal obligations, moral on the other hand is a different story (depends if they were good parents or not). i suspect it falls to the state to provide adequate care of aged people if there are no willing or living relatives, it is what they paid taxes for 40 - 50 years for.

    Is it considered immoral to lease to parents and charge rent?

    if they charged you rent when you became an adult and still lived at home, then you should absolutely charge them rent if you are leasing to them.

    if they didn't charge you rent when you became an adult and lived at home, you shouldn't charge them rent either.

  • rektrading on 10/03/2022 - 02:56
    +2

    Is It Legal to Lease Investment Property to Family Members or Ex Partner?

    Yes.

    https://onproperty.com.au/can-i-rent-my-investment-property-…

    Some people go as far as buying the house the tenant wants to live in and the tenant does the same to the landlord.

  • Kenb0 on 10/03/2022 - 03:10
    +4

    From ATO perspective: Tenants pay rent, landlord pays tax on the rent. I reckon there is no tax avoidance or tax evasion?

    As long as family members/related parties are paying market rent and is treated as a tenant at arms length, ATO won’t have a problem with it, they’ve released some guidance on this already in form of a tax ruling(IT 2167). If the property is being rented out at less than prevailing market rates, then complications arise.

    • mskeggs on 10/03/2022 - 07:25
      +3

      I assume this is only if you are claiming a deduction on the investment mortgage.
      Once you own the property, you can let anybody stay there free if you want.

      • Kenb0 on 10/03/2022 - 15:03

        Yes, this is all only relevant for purposes of claiming rental income, related deductions, etc.

        And it’s not just deductions on investment mortgage, it’s all the investment property deductions eg. Depreciation, land tax, council rates, etc.

  • Porker on 10/03/2022 - 07:31
    +2

    What situation are you trying to achieve OP?

    Might be easier to assist if you simply ask if what you're trying to do is ok rather than ask by understanding the rules.

  • bemybubble on 10/03/2022 - 08:21
    +1

    From ATO perspective

    So long as it's at market value then your fine. Is it's below market value then expenses must be proportionately claimed.

    From Centrelink perspective

    I'm pretty sure they still can if they can establish non-dependence

    From bank's perspective

    They usually just ask for a market appraisal

  • Duckie2hh on 10/03/2022 - 09:45

    Issue only arises when you are "leasing" your property to your parents in laws, they pay no rent and you claim 100% of the deductions on mortgage, etc.

    • Zeph101 on 10/03/2022 - 10:30
      +1

      If your not receiving any income you can't claim any deduction on your income tax return. Would be quite suss to list an investment property with no income while claiming deductions. ATO would immediately pick that up for questioning.

      You can however claim the interest payments as holding costs while calculating capital gains as long as property was purchased after s specific date.

  • Krankite on 10/03/2022 - 09:49

    Yes, it shouldn't be but it is.

    This is almost always used to either minimize Tax or to receive Centrelink for dependents.

  • JimB on 10/03/2022 - 09:53

    It's fine, the only time there's trouble is if your SMSF owns it.

    • Zeph101 on 10/03/2022 - 10:32

      Interesting thought.. is an ex partner a related party? I guess if all other ties are cut might be able to argue the point

      • JimB on 10/03/2022 - 10:41

        Perhaps so. Given the huge penalties for SMSFs, you'd either want to avoid the situation in the first place or get a private ruling from the ATO.

        Why risk it? ATO will prob see it as a sham arm's length/random agreement.

        • Zeph101 on 10/03/2022 - 10:54

          That is true.

          It also depends on the auditor to if they pick up on that stuff. I mean it's not hard to put a name on the lease that doesn't "appear" to be related. If you are requested to make a declaration that they are unrelated and found to be false that's a whole new set of issues.

          • JimB on 10/03/2022 - 11:02

            @Zeph101: You're correct to say it's unlikely to be picked up.

            Just because it's rented out at arm's length rent via an agent doesn't make it ok.

            So you have to ask yourself, why would risk your SMSF being non-compliant if you could rent it to someone else for the same price? And if you did risk it, surely there must be a reason why you'd insist on renting it to them, which may uncover the fact it's an arm's length agreement.

            • Zeph101 on 10/03/2022 - 11:32

              @JimB: You will find a lot of those trustees that rent to family members are of the mind that they are helping their family members out. They also like to know that the investment is being looked after and they can technically check it out whenever.

              But yes, once it becomes NALI then yep issues. A few don't even understand the new NALE rules and how it can screw them over just as much

              • JimB on 10/03/2022 - 12:26

                @Zeph101: I'm sure it happens and unlikely to get picked up but doesn't mean you should do it.

                With Facebook these days, it's not difficult for the ATO/Auditor to find out if the trustees and tenant are related, even if surnames are different.

  • daft009 on 10/03/2022 - 11:27

    yes, no issues.
    ATO cares about you charging market rent, not doing any favours etc, so if you want to be 100% above board.
    give it to an agent to manage who then rents it out to your ex-partner etc

    • Zeph101 on 10/03/2022 - 12:24

      If you don't charge market rent the ATO will just get you to amend your return to apportion your deductions. Son of your charging 50% market rent, you apportion the deductions by the same amount.

      • daft009 on 10/03/2022 - 13:23

        inviting them to dig more IMO. so easier to keep to above board

      • Kenb0 on 10/03/2022 - 15:07

        As far as I know, the deductions aren’t apportioned, they’re just limited to the amount of rent charged(if not prevailing market rates) and received ie.

        If your rental property is rented out to family or friends below market rate, you can only claim a deduction for that period up to the amount of rent you received.

        • Zeph101 on 10/03/2022 - 16:31

          True. Depends on the amount of rent vs deductions available.

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