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Rent from yourself

Discussion in 'Real Estate' started by Dezz, 27th Jan, 2016.

  1. Dezz

    Dezz Member

    Joined:
    27th Jan, 2016
    Posts:
    5
    Location:
    Toowoomba
    Hi All,
    So we all know that paying off your PPOR is a bad investment decision as payments and costs etc are non tax deductible. What about buying it in a company name (that you are a director of) and then renting the property from your own company?
    Is that possible?
    What considerations are worthwhile?
     
  2. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    I disagree with your premise. I haven't had a mortgage for decades nor been exposed to debt, but let's say your PPOR interest rate is 6% and assume you're in the top tax rate. Paying off a slice of capital from your PPOR is equivalent to a pre-tax return of 12% -- guaranteed. Risk free.

    If I could put my money into something that returned 12% before tax with absolutely no risk, I'd leap at it. In my book, there is no better investment than paying off your PPOR.

    In any event, interposing a family investment company as you propose will increase the amount of capital gain tax you pay if/when you sell, and attract a less favourable rate of interest on your mortgage.

    I'm sure there's plenty of people who will disagree with my disagreement.
     
  3. Albertus Waldron

    Albertus Waldron Member

    Joined:
    13th Jul, 2012
    Posts:
    11
    Location:
    Sydney
    Hi Dezz,

    I would talk to your accountant and be very careful before embarking on a strategy of purchasing the property in a company and then renting from yourself. I have helped a client who did this many years ago on the advice of a 'friend'. The result was a property that had to pay land tax every year and was subject to a huge capital gains tax obligation if he sold it.

    Your accountant should be able to go through the pro's and con's and if not . find a better accountant.

    Best of luck with your investing.
     
  4. Corey Batt

    Corey Batt Member

    Joined:
    12th Apr, 2016
    Posts:
    12
    Location:
    Adelaide, SA
    Loss of CGT free status, potential land tax and you'd want to check that the ATO won't put it under their catch all of it being a 'scheme/strategy primarily setup to minimise tax'.

    You see these funny questions a lot, generally not worth it otherwise every man and his dog would be doing it.
     
  5. Daddy

    Daddy New Member

    Joined:
    28th Jul, 2015
    Posts:
    4
    Location:
    Melbourne, Victoria
    Definitely talk to your accountant, doesn't really sound like the best way to do things to me either.
     
  6. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    I had a client the other day who had done this - and regrets it now.

    Loss of CGT main residence exemption status,
    land tax on this property (in NSW, threshold applies),
    Positive income will mean tax payable
    30% CGT when sold instead of 25%
    Franking credits reduced because of depreciation
    Corporations Law!

    Get legal advice.