Part ownership deductibility?

Question from Gerry updated on 18th June 2015:

We currently own a rental property in a look through company (LTC). My parents are looking to buy into the property and to live in it. As they will not be able to pay the full market value we will be left with a mortgage. Once they no longer live there then we intend to rent the property again. Let's assume they have enough to purchase 75% of the property. Will our 25% portion of expenses be deductible even though there will no longer be any rental income?

Our expert Mark Withers responded:

The most fundamental rule of deductibility is that costs must be incurred in relation to the production of income to be deductible. In your circumstances there is a clear change of agenda from income earning to private so no, your costs will not be deductible. It’s probably appropriate if the property is sold out of LTC ownership either to your folks outright with an acknowledgement of debt back for the unpaid portion or to a private arrangement where the property is held as tenants in common with unequal shares.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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