“Non-commercial rental

If you let a property – or part of a property – at less than normal commercial rates, this may limit the amount of deductions you can claim.

Example 7: Renting to a family member

Mr and Mrs Hitchman were charging their previous Queensland tenants the normal commercial rate of rent – $180 per week. They allowed their son, Tim, to live in the property at a nominal rent of $40 per week. Tim lived in the property for four weeks. When he moved out, the Hitchmans advertised for tenants.

Although Tim was paying rent to the Hitchmans, the arrangement was not based on normal commercial rates. As a result, the Hitchmans cannot claim a deduction for the total rental property expenses for the period Tim was living in the property. Generally, a deduction can be claimed for rental property expenses up to the amount of rental income received from this type of non-commercial arrangement.

Assuming that during the four weeks of Tim’s residence the Hitchmans incurred rental expenses of more than $160, these deductions would be limited to $160 in total – that is, $40 x 4 weeks.

If Tim had been living in the house rent free, the Hitchmans would not have been able to claim any deductions for the time he was living in the property.”

This example makes it crystal clear. If you get caught fudging the figures, the tax office has made it as clear they will be cracking down hard. Don’t risk it. Help the kids buy their own property instead. There are a myriad First Home Buyer inducements out there.

If you are considering an investment property real-estate purchase between now and Christmas, it will be imperative that you get some sort of pre-approval from your lender. Better still ask a competent mortgage broker to secure you pre-approval. In writing!

The Reserve Bank seem hell bent on increasing official interest rates again, (the popular media have been selling the idea for them in every news program or update) and I feel that this action may just be the trigger for a sell-off of property in the low to medium price band.

Many in this band are recent first home buyers who have paid the first home buyers bonus driven inflated market value for their property. So they have bigger than expected home loans. Added to this many have funded the exorbitant lenders mortgage insurance premiums charged on their home loans with their credit cards, personal loan or loan from family.

This means opportunity if you are cashed up and ready to move.

However, credit is tight and lenders seem reluctant to lend without creating time wasting road blocks. On the plus side your rents will be good as there is still a shortage and the people who have to sell up will need somewhere to live and with immigration adding 2000 new aussie’s a week, residential property is destine to rebound strongly over the next 20 years even if interest rates follow historical trends.

Are you thinking of selling your rental property to take advantage of the first home owner property bubble? Do you have a fixed rate loan?

If you are going to break a fixed interest loan agreement to sell a rental property, you should be able to claim the penalty interest as an outright tax deduction. This is because the penalty interest is a discharge cost and specifically allowed by the tax office. You must have received rental income in the year of your claim or it will not be an immediate deduction. The penalty interest and fees will be added to the cost base of your property if you have not been getting income. You won’t miss out on a tax break either way. Ask your accountant for clarification.

Check with your lender before you consider selling your rental property. You need to know exactly what fees and penalties you are up for! Also, check your current loan statements for errors.

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My thoughts are no! If you are in a panic about rates, I still say no. If you simply must fix, fix a portion of your loan, not the lot. How will you feel if rates go down to 2% after you have fixed at 6%. There are lot of folk who have fixed at 8%, they now find it very expensive to refinance. I say remain flexible if you can.

My gut feel is that a lot of borrowers are enquiring about fixed loans and the Banks and other major lenders are simply taking advantage of the demand. They all have plenty of cheap money from over seas and from the Government deposit guarantee. First home owners may consider a fixed loan, as it will provide certainty for at least a five year period and give them a chance to accumulate some equity.

Before you take a fixed rate loan, be warned that there is devil in the fine print and a hefty cost if you decide to refinance your loan before the fixed term expires.

Don’t forget you can still save for your first home with the Governments “First Home Buyers Deposit Saver Scheme.” No need to rush, house price’s may well come down 20% post 31 December 2009, as the depression deepens! So keep saving.

In the mean time speak to a quality Mortgage Broker about how much you need to save.

It seems all the original criteria remain the same, with just the date for expiry extended to 30th September 2009, in its current form and to 31st december 2009 with slightly reduced benefits. So get your skates on, free up your cash. Sell that expensive car and take the bus, cut out excessive spending on entertainment and clothes, give up smoking and take a part-time job. Above all save, save, save.

Unfortunately property prices have gone up because of the boost, but there are still some reasonably priced properties available and interest rates are at historical lows.

Do you have a granny who is ready for the nursing home? Why not buy her house? You could even let her stay as boarder after you take over. You will save on agents fees at least. She may be happy that her home is staying in the family.

There are heaps of things you can do to find a reasonably priced home. Please be innovative, think outside the square. However, make sure you abide by the rules of the boost. I hear the government will be checking up on people.

If you dont have a contact with a Bank or Mortgage Broker, I am now using Easy-Loans for my customers. All the work is done either by email, instant messenger or telephone, hassel free.