Parent Buy Property in Your Name, and Live in It. Can You Claim Mortgage Expenses?

LYehyeh on 06/03/2018 - 11:08

At the moment my mother in law lives by herself in a fully paid off property (she's on age pension, no other income and not much other assets), since she is getting old and it would be better for us to live closer together, her friend suggested that she sells her property, use the money to buy another property closer, and have it under our name, and so we would be able to claim mortgage interest expenses.

I just want to ask, is this do-able, doesn't ATO require you to actually rent out the property and pay tax on your rent income in order to claim the interest deduction? (We have our own mortgage which is our primary residence, no other properties) And I'm worried it might affect her age pension in some way too, and whether it is "legal" per se.

Any ideas?

Thanks.

Financial

Comments

  • geek001 on 06/03/2018 - 11:16
    +1

    That won't work without some dodgy dealing. As your current mortgage is on your own house, you will either need to rent her your house, or you buy the new house using a loan and use her money to pay down your mortgage instead.

    In order for the rental to be legit, she will need to pay you rent regularly and have evidence of this in case you get audited.

  • whooah1979 on 06/03/2018 - 11:19
    -2

    Paying rent with cash is a wonderful thing

  • coolhead on 06/03/2018 - 11:19

    she can pay you regular rental and then you pay her back -this ways the property is on rent and you can claim interest in tax deduction… is she planning to buy new property outright? or have loan on it if i may ask

    • Yehyeh on 06/03/2018 - 12:19

      She would probably find a property that doesn't require her to pay extra (ie. more than proceeds she got from her current residence)…

  • djkelly69 on 06/03/2018 - 11:21
    +4

    If she pays cash for a property in your name, what are your 'mortgage interest expenses'?

    • Yehyeh on 06/03/2018 - 12:15

      Well that would be interest paid on our own mortgage I suppose, I'm trying to get my head around this too!!

      • djkelly69 on 06/03/2018 - 12:32
        +4

        Your mortgage (presumably) relates to your property which you are living in, so the interest on that mortgage is not claimable.

        Maybe the friend is thinking you will grant a mortgage to MIL over the new property, and the interest on that is claimable. In which case there is a lot more to it than the friend thinks.

  • kingsville on 06/03/2018 - 11:21
    +1

    As far as I know:
    Since it won't be your primary residence you'll also be paying land tax.
    The cash she ends up with will be tested for pension (her current house is not).

    • Yehyeh on 06/03/2018 - 12:22

      Yes, so I guess we need to get more advice before we even think about this, the cost would probably be higher than the benefits from it!!

  • [Deactivated] on 06/03/2018 - 11:22
    +2

    If you have to ask if it's legal…

    Probably not.

  • majuks on 06/03/2018 - 11:51
    +1

    YOu can rent it out to your relative, provided you rent it out at a market rate. Get a realestate agent to write a letter stating how much that rent it and you should be okay to go.

  • team teri on 06/03/2018 - 12:31
    +2

    It all looks like a lot of trouble for probably very little gain.

    A way to possibly legally achieve your desired outcome:

    She sells her property and gifts you the money she gets for it (at least the part of it that would affect her age pension). You could use that money to pay off your own mortgage.

    You then buy an investment property with a new mortgage and rent it out to her. She pays a market rent which will be taxable income for you.

    Whether you take the rent money or give it right back to her as a gift is of course up to you, but it will be taxable income for you. The interest on the new mortgage should then be a tax deductible expense. Whether any taxes are saved depends on whether you pay more interest or receive more rent, etc…

    One big question is: what does Centrelink think of someone who gifts away all their money only to be eligible for the age pension. There might be rules preventing that…

    • Yehyeh on 06/03/2018 - 13:07

      It does sound like there's a lot of effort too. It might affect her age pension, would create CGT issues if we sell that property in the future, and to maintain it we might need to get real estate agent and possibly tax accountant to manage tax affairs…

  • Yehyeh on 06/03/2018 - 13:11

    Thanks for all the comments, I think it doesn't sound like a good idea after all, too much trouble to go through, all with little gain (if any, as we actually don't pay that much in interest at the moment anyway). She can go on and move to another property but doesn't need to be under our name. Thanks!!

  • tsunamisurfer on 06/03/2018 - 13:17
    +2

    There are 3 big issues here.

    1) Primarily the MIL is putting herself at risk. Previously she had a fully paid off home, now under this scheme that money has gone into an asset under someone else’s name. Doesn’t she have any concerns that she could end up homeless should the marriage end?

    2) Centrelink are going to be concerned about someone who previously owned their own home, then sold it, then all the proceeds of sale are for all intents and purposes, gone. Not being a home owner changes her eligibility and transferring hundreds of thousands of dollars to someone else could be construed as gifting. There are restrictions on gifting.

    3) If this is to minimise tax, then there are many other considerations :
    - What are your current tax brackets? Is it worth the effort?
    - By doing this you are potentially exposing yourself to a one off stamp duty event….could cost thousands.

    • Yehyeh on 06/03/2018 - 17:27

      Well I hope the first point won't happen lol. Yes I agree it can be too risky, especially when we don't understand too much about how it would work!

  • Quantumcat on 06/03/2018 - 21:46
    +1

    For the age pension you're allowed to own your own home up to a certain value and not have it affect your pension. But cash will affect it. If she doesn't own her own home and gives away the money she could end up with little to no pension.

    • try2bhelpful on 07/03/2018 - 08:43
      -1

      That would be my concern as well

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