Yes, you can rent your investment property to your parents or siblings and still claim negative gearing—but there are strict rules you need to follow, and the arrangement must pass the “arms-length” test.
In simple terms, the Australian Taxation Office (ATO) wants to ensure the rental arrangement is genuine and commercial. That means:
You must charge market rent. If you rent your property to your parents or family members at below-market rent—even as a favour—you won’t be able to claim the full tax deductions. The ATO requires you to apportion your expenses based on the rent you actually receive.
For example, if the market rent for your property is $500 per week, but you’re only charging your parents $400, you’re effectively charging 80% of the market rate. In that case, you can only claim 80% of your allowable expenses, including interest, rates, and maintenance costs.
There should be a formal lease agreement. Just like you would with any other tenant, put the agreement in writing. It should outline the rent amount, bond, payment frequency, and responsibilities.
The property must genuinely be available for rent. That means your family members are not living there rent-free or using it like a holiday home. The ATO wants to see that you’re actively trying to make a return on the property.
Expenses must be substantiated. Keep solid records of rent received, expenses paid, and communication around the tenancy. If the ATO reviews your return, they’ll want evidence the arrangement isn’t just helping out family under the guise of an investment.
Also, be mindful of perception—renting your investment property to parents or close family might invite closer scrutiny from the ATO. They want to ensure the deductions you’re claiming are for legitimate investment purposes, not personal arrangements.
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