Tax efficiency for landlord-tenants

Our Experts Answer:

I agree this circumstance is not very tax efficient. The net rent from your old home is fully taxable and no deduction against this is available for the rent you pay as this is a private and domestic cost.

There isn't a quick or easy solution but, if your move becomes permanent, you might consider buying in your new location. If you buy and wish to keep your old property you could undertake a restructure with the old property being sold to a Look Through Company (LTC) that borrows to buy it from you. This will release your equity and reduce your personal non-deductible home loan. The company will run under the burden of a higher debt which will reduce the taxable rental income.

If the return on your old home is too low to justify retaining it, I would suggest selling it and buying a new home. This would mean exiting the rental arrangement and getting into a new home with the benefit of your capital to minimise the mortgage. With interest rates as low as they are currently, this may even prove cheaper than renting.