Transfer of tax deductions to another person?


I own a property in my own right, as does a friend, who I have just moved-in with in order to rent-out my property, saving us both in general living expenses.

My friend is temporarily helping me out financially until I’m able to establish a new stream of income & is paying all interest/leasing/advertising costs etc. on my property, as currently I have no PAYG income, whereas she does. I intend having my rental income paid directly onto her personal mortgage in lieu of my paying her "rent" as my contribution to the household expenses.

Can the tax-deductibility of costs be transferred to her under these circumstances, even ‘though the property is wholly in my name, or would I need to establish a "Tenants in Common" arrangement (1%/99%) to facilitate this? Adjust the loan to show her as a Guarantor?

Would she be able to apply for her PAYG tax to be adjusted to take her outgoings into consideration given the above?

Alternatively, would she be better to use me as an official "tenant" in her own home & make deductions/claims accordingly?


The short and simple answer is no she is not going to be able to claim expenses for a property in your name . So let’s look at the alternatives

Your friend could lend you the money to meet the rental property expenses and then at least when you have an income you could borrow to pay her back and the interest on that loan would be deductible. The fact that you are using the rent to cover your personal living expenses would not preclude you from claiming a deduction on borrowings to cover interest etc on the rental. In the first Hart’s case it was stated that if you needed to use your rent because of financial hardship then there was no problem borrowing to pay interest on the rental.

Another option would be to sell her the rental property, she could borrow the full purchase price and claim a deduction for all that interest and you could get your equity back to live off. The catch with this one would be the stamp duty expense. Some states give concessions on stamp duty when a property is transferred between spouses. If you go do the transferring to spouses line then you have to make sure you are not stating that the transfer took place at zero value because you want her to be able to borrow to buy her share and claim the interest as a tax deduction. This will of course mean a CGT event for you but sounds like it is a good year to realise some capital gains. Then as the property is truly hers she would be able to apply for a PAYG variation.

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