How will buying with my friend affect my benefits? Ask Margaret

Hi Margaret,

I'm going to buy a property with my friend. Both of us  are renting at the moment and the property we are going to buy will be our first home.

We don't want to move as soon as we buy.

1. Will this affect the rental assistance we are getting from Centrelink?
2. Should we pay the capital gains tax (CGT) while we sell the house in future?

Regards,

Arabu

Margaret's answer is on the next page. Please click below.

Hi Arabu,

If both you and your friend currently qualify for Centrelink rental assistance, then you will need to be reassessed by Centrelink once you have acquired this new asset.   Rental assistance, just like any income support, is assessed according to an income and assets test and you need to see if you still qualify for the same level of, or any, rent assistance.

Centrelink will assess the net income of the property and this does take into account the net taxable income, which is what would be on your tax return.  They also assess your assets and in your case, if you already have a deposit for a property, this deposit would already be being assessed by Centrelink as an asset, and so it's likely that the additional income shouldn't affect your benefits too much, unless your deposit is really large and you own most of the property when you buy it.

As this property will be a rental first before it is your principal place of residence, then there will be CGT consequences when you sell it.  The gain will be assessed using a  formula which considers days rented and days not rented and proportions the gain accordingly.  It will be critical for you to keep all records including receipts of anything you spend on the property, for as long as you own the property,  so that your tax liability can be correctly assessed when you dispose of the property.

On another note, if your friend is not a spousal partner, I'd like you to be aware of the consequences which can arise when you enter property ownership with someone who you are not sharing financial circumstances with.  They include:

1. A lender will consider any loan repayments on a loan you are a party to as being all of your responsibility, in case your friend doesn't uphold their side of the arrangement.  This means if you apply for future borrowing to buy a property without your friend, the entire loan repayment is assessed as being owned by you and may affect the amount you can borrow.
   
   
2. If you and your friend end up with different ideas about when you wish to exit the property, there could be an issue.
   
   
3. If you and your fiend end up falling out, this is also a problem as it's hard to own a property with someone you no longer associate with.
   
   
4. If the property gains in value, you can only leverage against this gain for a further property with your friend, since they own the equity too.

It's always a better plan to invest alone than to invest with friends or relatives.

Kind regards,

Margaret

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