LTC rent out to children

[Lodestar]

Would it be acceptable for the following scenario?
LTC (my wife and I as shareholders) buys a house and rent to our two adult children. They pay market rates. Of course, we as parents stay with them.
Can the mortgage interest and other expenses offset the rental income?
Thank you.

[Rosco]

Hi Lodestar,

This sounds dodgy, so be careful.

What money will you be putting in, and with this money in will the property run at a loss? If its a loss, it will look like tax avoidance and that you have set up the situation to get a tax deduction on your personal house. If a profit, then probably better ways to do it.

Over time, if there is a loss, will this quickly change to a profit as you pay off the loan?

If you are in Auckland, watch new investor rules, as you might have to put in 30% deposit! Which might make it positive?

This sounds like your personal house, so tread carefully!

Ross

[PTILoveYou]

Of course, we as parents stay with them.

You can rent out the house to your children, but you can't stay with them in that same house for tax purposes.

[spaceman]

Can you???

Of course you can....we don't live in a police state ....BUT ....(there's always a but) .....if the reason you're doing this is to reduce the tax you're paying then it's tax avoidance .....so you need some other reason to to be entering into the arrangement and for the tax saving to be incidental.

Sounds simple....but ......the tricky bit is having a bullet proof reason that you're prepared to stand behind when the IRD auditor starts asking question.....if you have one, then no problems.

Cheers
Spaceman

[PTILoveYou]

Remember IRD knows who you are. This post will serve as evidence for tax avoidance if you do wish to carry out your original plan...

[spaceman]

^Not true.......they asked if it could be done....they didn't give their reasons for wanting to do it....if they have a legit reason they won't have a problem.......if they're trying to avoid taxes, they will.

Cheers
Spaceman

[PTILoveYou]

^Not true.......they asked if it could be done....they didn't give their reasons for wanting to do it....if they have a legit reason they won't have a problem.......if they're trying to avoid taxes, they will.

Cheers
Spaceman

Well if they asked here, and then they did it, then I would say they won't have a case to argue otherwise...

My point is, if you think your proposal/trick is a bit dodgy, make sure you talk to your accountant face to face and behind close doors!

[Lodestar]

Thank you all for your comments/advices. Just toying with the idea whether it is worth the trouble. Thanks again.