Hi Dear,
My client bought an investment property and rent it to his brother in law and made a rental loss. Can he claim loss in his personal tax return? (negative gearing)
If it he can, what kind of approval he needs to obtain to approve that he rented it at market rate?
Thank you very much
Danielle
Hi @Danielle19,
Your client can claim rental deductions (including negative gearing) when renting to relatives, but only if the property is rented at market rates. When a property is rented at non-commercial rates (less than market rates), the deductions are limited to the amount of rent received, and losses cannot be claimed.
This means if your client is charging below market rent to his brother-in-law, he can only claim deductions up to the rental income received. He won't be able to claim the rental loss against his other income, such as salary or wages. For negative gearing to apply, the rental arrangement must be on commercial terms at market rates.
There's no formal approval process required from us to verify market rates. However, your client needs to be able to demonstrate that the rent charged is consistent with market rates if we review the matter. It's a good idea to gather evidence such as:
Your client should also ensure they're apportioning expenses correctly based on their ownership interest and the period the property was rented or genuinely available for rent on commercial terms. All rental income must be declared, and proper records of both income and expenses should be maintained.
Review the information on how to claim rental expenses on our website to ensure all deductions are claimed correctly. If your client needs certainty about their specific situation, they can request a private ruling from us.
Can he claim loss in his personal tax return? (negative gearing)
Only if rented at market rates.
If it he can, what kind of approval he needs to obtain to approve that he rented it at market rate?
Get a rental appraisal, based on similar properties, from an estate agent.
Hi @Danielle19,
Your client can claim rental deductions (including negative gearing) when renting to relatives, but only if the property is rented at market rates. When a property is rented at non-commercial rates (less than market rates), the deductions are limited to the amount of rent received, and losses cannot be claimed.
This means if your client is charging below market rent to his brother-in-law, he can only claim deductions up to the rental income received. He won't be able to claim the rental loss against his other income, such as salary or wages. For negative gearing to apply, the rental arrangement must be on commercial terms at market rates.
There's no formal approval process required from us to verify market rates. However, your client needs to be able to demonstrate that the rent charged is consistent with market rates if we review the matter. It's a good idea to gather evidence such as:
Your client should also ensure they're apportioning expenses correctly based on their ownership interest and the period the property was rented or genuinely available for rent on commercial terms. All rental income must be declared, and proper records of both income and expenses should be maintained.
Review the information on how to claim rental expenses on our website to ensure all deductions are claimed correctly. If your client needs certainty about their specific situation, they can request a private ruling from us.
22 Apr 2024 · 6 min read time
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