Are we committing tax avoidance?

Question from Simon updated on 5th September 2008:

Mother and sister form an LAQC and buy an investment property. Mother and son form an LAQC and also buy and investment property.
The son rents and lives in the Mother and Sister's LAQC property at market value, then rents the property in his and his mother LAQC to a stranger at market value?
All parties are offsetting their respective interest costs against their personal incomes.
Is this tax avoidance.

Our expert responded:

The tangled webs we weave!  The loss in the son and mother's LAQC will be fine, because it is ernted to an unrelated third party.  The loss in the mother and sister's LAQC will have a question mark over it because the son is renting the property.  In this case, everything must be done at market value as if a stranger was renting the property.  Be prepared in a situation such as this that IRD may have a very close look at it, and that the consequences may not be what you intended.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth.  She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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