Yes, you can rent your investment property to your children or other family members and still claim negative gearing—but there are strict conditions you need to meet. The rental arrangement must pass the ATO’s “arms-length” test.
In simple terms, the Australian Taxation Office (ATO) wants to make sure the rental setup is genuine and commercial—not just a personal arrangement disguised as an investment. That means:
You must charge market rent. If you rent the property to your kids or family members at below-market rent—even with good intentions—you won’t be able to claim the full tax deductions. The ATO will require you to proportion your expenses based on the rent you actually receive.
For example: Let’s say the market rent for your property is $600 per week, but you’re only charging your adult child $420 per week. That’s 70% of the market rent. In this case, you’ll only be able to claim 70% of your allowable expenses—such as loan interest, council rates, and maintenance costs.
There should be a formal lease agreement. Just like any standard tenancy, put everything in writing. Include the rent amount, payment schedule, bond details, and tenant obligations.
The property must genuinely be available for rent. Your child or relative can’t live there rent-free or treat it like a holiday home. The ATO expects to see a genuine attempt to generate income.
Keep proper records. You’ll need to document rent payments, expenses, and any communication related to the tenancy. This helps show that the arrangement is being treated just like any other rental.
Also, be aware that renting to close family—especially children—might raise red flags with the ATO. They may take a closer look to confirm that your deductions are based on a real investment strategy, not a personal favour.
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