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Hi All! I'm doing some rearranging.. maybe you can help?

Discussion in 'Introductions' started by chillipiKLe, 31st May, 2010.

  1. chillipiKLe

    chillipiKLe New Member

    Joined:
    31st May, 2010
    Posts:
    2
    Location:
    Sydney, NSW
    Hi, I'm in Financial IT and while I know a bit about the systems behind the $, I have so much to learn about the $ themselves!! I have a question which seems very complicated to me, but may be easy peasy for all of you!

    My ex partner and I own a property together (tenants in common 50/50) in the suburbs which I live in, while he rents in the city (our outgoings are equal as we share both the mortgage costs and his rent). This has been working well and was a good solution 4 years ago but as time wears on it is obviously not very financially savvy. As he wanted to use more of his available capital and purchase a substantial investment property we agreed that he would buy out my half of the house and that I would rent from him and buy myself an investment property. My question is, when I buy an IP could he rent it from me? I mean, obviously we could do that, but for taxation purposes would we remain eligible to claim as IPs or does the mutual arrangement make us ineligible?

    I've tried to find the answer on the ATO website and a number of investment sites, but with no luck, so any advice you may have before I go to my accountant would be appreciated!
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Hi

    I'm not an accountant but from what I know there is no problem living in each other's home provided you both pay market rents.

    In your case you say you currently share all costs including his rent. I don't know if the ATO will treat his 50% share of the property you live in as his PPOR.
    I think this could fall under the 6 year CGT exemption rule.

    Assuming you both live in each other's property
    you'll also need to have a reasoning for doing this,
    eg you trust each other as a tenant?
    and not: we are trying to share the interest with the tax office.

    Be aware though that you're liable for capital gains tax when you sell an investment property. :eek:
    And no you can't get CGT exemption on 2 residences so he has to treat 1 property as an IP
     
  3. chillipiKLe

    chillipiKLe New Member

    Joined:
    31st May, 2010
    Posts:
    2
    Location:
    Sydney, NSW
    Thanks Billv! I have seen many of your posts here and found them to be very well balanced and informative, so I really appreciate that you've taken the time to reply to me :)

    We definitely have trusting each other as tenants as a reason for renting from each other but I think the fact that the properties themselves are vastly different in terms of both size (1 bed v 4-5 bed) as well as value (<$400K v >$800K) should help demonstrate that this arrangement is just people trying to doing the best that they can with what they have. If I could afford to buy the other half of the house I live in I would, but it would triple my mortgage repayments, so it's just not possible.

    What is the 6 year CGT exemption of which you speak?! I'm going to Google it now..
     
  4. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Moving on? Remember the six year rule for CGT
     
  5. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    I agree with Billv, do it commercially and have lease agreements so if things happen in the future, the relationship goes south, you have a legal basis to increase rent, give notice etc. It will also help substantiate the arrangement for the ATO if they ever were to ask.

    He purchasing your share will probably be a cost to him regarding stamp duty (I do not know NSW legislation) but should not cause any issues for you, i.e. no CGT etc.

    There is often great benefit of having a close friend/ex-partner/family renting your IP as you (may) know they will look after it, pay rent on time, etc. If they don't, it can be more difficult and at greater cost to rectify.
    Good luck
    Greg