Granny flat taxes
Kim asks:
(updated on Thursday, December 19th 2019)
We've purchased an investment property for my elderly mother to live in. She is paying us below market rent which covers our mortgage payments. The insulation and heating standards are below par, but she is on the pension/community services card and a gold card member. What are the tax implications for this arrangement? Do we/she qualify for any subsidies for upgrading the house insulation/heating if she's not on title?
Our Experts Answer:
Your mum is a related party to you and, for family reasons, you have chosen not to seek a market rent from her. In these circumstances a full deduction for costs is not available to the extent that losses could be created. That’s because it would amount to a tax deduction for the discount you are allowing your mother, which is a private and domestic arrangement. It is acceptable to claim a deduction to the extent that rent is derived but not acceptable to go beyond that to deduct a loss.
Anyway, a loss from residential renting is now ring fenced from deduction against other income. I would like to point out that there is no " main home" exemption available to you from bright line as the house is the home of your mother but she is not the property’s owner. This means that should the house be sold within five years any gain on disposal is taxable under bright line.
Your question about heating subsidies is outside my area of expertise but I suggest you check with work and income. As for insulation, the house is rented and so there is an obligation to ensure it is adequately insulated.
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