Renting An Investment Property To A Relative
A commonly asked question by clients is around the deductibility of rental property expenses if you rent to a relative. We now have more clarity on the arrangement due to the recent case held in November 2012 at the Administrative Appeals Tribunal Bocaz v FCT.
The ATO released Taxation Ruling IT 2167 in 1985 which discussed the ATO’s position with respect to the letting of a rental property to relatives.
The general view was that if the let of a rental property to relatives was on a normal commercial basis the owner of the rental property would be assessable on rent received, and be entitled to the same deductions that any other person would normally be able to receive.
Alternatively, if the rental property is let to relatives at less than market value the deductions would be limited to the amount of assessable income received (and hence no negative gearing possible).
Bocaz and the Federal Commissioner of Taxation
In the case of Bocas v FC of T the taxpayer co-owned two investment properties with her son as joint tenants. The two properties were:
Issues decided by the Tribunal
The Tribunal decided that:
This case confirms the long-held ATO view that if an investment property is rented to a relative at a commercial rate than a full tax deduction can be claimed against that income, and can if applicable, result in a loss in the property to be offset against other personal income received.
Hillyer Riches is a specialist accounting, business advisory and SMSF firm located in Melbourne. We service areas in the eastern suburbs of Melbourne such as, Caulfield, Camberwell & Malvern. For more information email an accountant at email@example.com or phone us on 03 9571 5333.
This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified accountant or other suitable professional.