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Renting out a spare house with friends

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Hi,

My family has a spare house and I and a few friends were planning on living there in the future. Tax wise this is my current understanding of how it would work per month for example: Total amount of rent minus expenses (internet, water, food etc.) = net $. And this net $ is the amount my father would declare as income tax.

 

However, if we were to reinvest into the house (e.g. new tv), how would tax work?. I've read something that says if the intention of renting is not to generate a profit then there is no need to tax. Also since one of my friends will be on centre link for youth allowance would it affect how tax would work?

 

 

Thank you for reading and replying Smiley Happy 

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Hi @mcheuu9,

 

Welcome to our Community!

 

Generally speaking, if a property is being rented to family member it will depend on whether the rent being paid is at the commercial rate for the area. If the property is being rented at the same commercial rate as other houses in the area, the owner of the property is able to treat the rental income and deductions the same as if the property was rented out to a third party.

 

If the property is rented a less than the commercial rate, the income would be considered as assessable for the owner, however they wouldn't necessarily be able to claim deductions and it would depend on the reason why the property is being rented to a family member.

 

You can only claim expenses for managing and maintaining a rental property, so buying a TV is not consider an expense and can't be claimed or have any effect on tax. The same goes for one living in the property who is receiving Centrelink payments.

 

You can find more information about letting of property to relatives in our Taxation ruling IT 2167 (refer to section 13 - 16) on our website.

 

Thanks, JodieH.

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Taxicorn

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Your undersanding is incorrect.

 

If you are paying less than what could be received if renting to non family then the expenses that couldbe claimed can only be equal to the rent received.

 

The claim could only be for the number of weeks it was rented as it is not advertised for rent all year.

Expenses do not include food.

They only relate to the house not the people living there.

 

You declare rent as income and then expenses as deductions.

 

You buying things for the house has no effect.

Being on Centrelink has no effect.

If the intention was or wasn't to make a profit has no effect.

 

Doing so will open up the house for Capital Gains Tax when the property is sold.

 

You really need to speak to a Tax Professional.

 

 

 

 

 

Best answer

ATO Certified

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Replies 0

Hi @mcheuu9,

 

Welcome to our Community!

 

Generally speaking, if a property is being rented to family member it will depend on whether the rent being paid is at the commercial rate for the area. If the property is being rented at the same commercial rate as other houses in the area, the owner of the property is able to treat the rental income and deductions the same as if the property was rented out to a third party.

 

If the property is rented a less than the commercial rate, the income would be considered as assessable for the owner, however they wouldn't necessarily be able to claim deductions and it would depend on the reason why the property is being rented to a family member.

 

You can only claim expenses for managing and maintaining a rental property, so buying a TV is not consider an expense and can't be claimed or have any effect on tax. The same goes for one living in the property who is receiving Centrelink payments.

 

You can find more information about letting of property to relatives in our Taxation ruling IT 2167 (refer to section 13 - 16) on our website.

 

Thanks, JodieH.

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