Structure for accidental landlord

Question from Shaun updated on 24th April 2012:

Excuse the naivety but I’m an accidental property investor so I haven’t spent much time researching these matters. About six months ago we relocated due to a job change and are currently renting. The house we own (and moved from) is on the market but we put tenants in it. This was intended to be short term so not much thought was put into the tax structure. The property is worth around $190,000 to $200,000 (RV$178,000) and we receive $250 per week. At present, we haven’t even paid income tax on the rent. Due to the house not selling, we are firstly thinking we need to spend some money and give it a bit of a tidy up (new kitchen, exterior paint etc) and secondly we need to be positioned for it to remain tenanted in the medium to long term. In regards to tax, what structure should we look into and what costs are involved? We need to keep in mind that the house could sell at any time so we wouldn't want to pay huge amounts in setting up a company and or transferring titles.

Our expert Mark Withers responded:

 I assume you own the property jointly. Given things are up in the air with the property I'd suggest you leave it structured exactly as it is. This still entitles you to deduct costs associated with owning the property against the rental income. Costs may include interest, rates, insurance and maintenance. Be careful with the maintenance because capital expenditure on the property is not deductible as maintenance. Maintenance is really only the cost of making good on wear and tear caused by the tennants and doesn't include upgrading and improving the property. If you decide to buy again and retain this property as a permanent rental you may like to consider restructuring to ensure your debt funds the rental and your equity is in your home but you are clearly not at that stage yet. Keep it simple for now is probably the best bet.

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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