Property setup query

[tandarra]

Not sure if this is a confusing one or not.

My mother is building a house which is almost finished, she had 85% of the cash to build and I've funded the remainder so there was no mortgage against it.

Now it's almost complete she wants to be able to help me financially further, whilst still protecting her asset.

Can she be on the title and live in the house rent free, whilst I can still claim all the expenses for tax purposes as an investment property, while still being protected from banks and potential future partners.

I have 3 other investment properties in Auckland each with separate banks. This property of hers would also be with another bank and a revolving credit type facilities or the use of it as security would be set up with the intention of further investment.

My concern is if she's on the title not paying rent, is this considered her PPOR and thus voiding it as an investment property myself.
And If it's in a trust then I can no longer claim expenses against my income?

I hope I'm asking the right question or any any suggestions fire away!

[Rosco]

Hi Tandarra, there is so many parts to this, and you need to get some expert advice from a property accountant to improve your basic understanding of rentals and tax laws. I'll mention a few;

1) Brightline test - I'm guessing the property is currently in your Mother's name as she paid for 85%. So if you sell to your Trust or another entity, then most likely you will be caught by the Brightline Test and any gains would be taxable. Personal home exemption most likely won't apply, as not predominately personal home(ie being built or empty for more time then being used as your Mother personal home).

2) Property will make a profit. If no mortgage, and a rental, and fair market rent was paid there would be a large profit and tax to pay as the rent would be more than expenses. So structuring it in a way where your mother pays rent so that you can deduct the expenses most likely won't work!

3) Rent free and still claim all expenses - NO. There is lots of different ways to structure this, but you can't have no rent (no income) and still have all the expenses for tax purposes.

Overall it sounds like you are trying to manufacture a tax deduction from your Mothers personal house. Be careful as this could be considered tax avoidance or worse!

Ross

[tandarra]

Cheers I'll look into sitting down with a property accountant and seeing what advice they may have.