It is fairly common knowledge that the rent you receive from a rental property is included in your tax return as income, and expenses directly relating to the rental property can be used to offset the rental income received. The basic principles of recording your net rental income in your tax return is fairly standard where the tenant is an otherwise complete stranger to you.
However, you may rent your property to a family member. This increased familiarity is often followed by a reduction in the rent charged, like a “mates rate” being applied.
There are specific rules which govern what to include in your tax return where the tenant is related to you:
I charge market rates for the property to a family member:
There is no difference to an arms-length tenancy. You include all income received as income and offset this with expenses directly related to the rental property (excluding travel).
I charge a reduced rate for the lease of the property to a family member:
Rent received (at the reduced rate) is still included as income in your tax return. However, expenses directly related to the property are NOT wholly deductible. You are only able to claim an amount of expenses which is equal to rent received.
For example: $25,000 rental income was received during the last financial year. Even though related expenses incurred equalled a combined $26,000, the taxpayer is only able to claim $25,000 of this in the tax return (the net effect being income from rent reduced to nil).
I charge no rent for a rental property to a family member:
If no rent is charged, or if an amount of “board and lodging” is received for a rental property, the ATO sees any income received as being personal/private in nature, and therefore not assessable. Consequently, any expenditure related to the property is also personal/private in nature and cannot be claimed in your tax return.
Contact us at Dolman Bateman or Buildersbooks if you are looking for an experienced accountant or Bookkeeper.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.