It is very common these days for people to purchase property and have a family member live in the property.
This can have advantages in having someone you trust look after your property, giving you the ability to stay there during visits to Australia as well as fulfilling family obligations to support your parents or other relatives.
Australian tax law is very simple, in so far as it says that in order to be able to claim any costs, then you much receive some income. Therefore if there is no rent collected on the property from your relative, then you can not claim any interest or other property costs.
This would mean that if you do chose to have family members living in your house and they do not contribute any rent, then all costs of the property are not allowed as a tax deduction at all. Given that interest is usually the largest cost, it would mean that it is preferable to have a low or no mortgage on a property that is solely for use by a family member, especially a parent.
If you do charge some rental then it is possible to claim all costs of the property in your Australian taxation. One major issue here though is that where the property is rented to a relation, the Australian Tax Office requires you to declare as income whatever the true market value of the rental is, regardless of what you may collect.
So even if you only receive a below market amount of say A$100 per week rental, in order to be able to claim full expenses you will need to declare the true market value, as can be determined by a Real Estate Agent, in your tax return. If that is higher than the actual amount received, then the higher figure would be put in your tax return.
This means you need to establish what the market rental is and what your total costs of ownership are. If the costs are greater than the market rental it is worth declaring the property in your tax. If the costs are less than the market rental, then likely you should leave the property out and treat it as a family arrangement.
Regardless of what method you chose, the property will still remain subject to Capital Gains Tax on eventual sale, so you also need to be mindful of the implication thereon.
In some cases, especially where it is genuinely your parents or relatives home, you may be better to have the property in their name as they would be entitled to Capital Gains Tax Free Status as their Principal Residence.
The decision as what to do can be based on many factors including debt level, availability of finance, type of property and family obligation. Everyones situation will be different, so it is strongly recommended that you seek professional advice prior to any contractual commitment to evaluate the best option for your circumstance.
The ability to accrue tax benefits exists on property that your relations may live in, all you need to remember is that the property needs to be treated as a proper commercial environment. The Australian Tax Office doesn’t mind you helping your family, they just don’t think it is fair that they help subsidise the lower rent you may want to offer.
