Q A family member is going to rent a house owned by the family trust, potentially at below market rental. The family member is a secondary beneficiary of the trust. Are the expenses reduced by the same percentage as the rent? Are there any tax implications?

A The reducing of the rental because the tenant is a family member introduces a private and domestic component to the expenditure. Deductions would not be available, as those costs exceeded the extent to which the income had been discounted. The best policy in my view is to rent the property at full market value as supported by an independent rental assessment. All costs are then fully deductible. The trustees then can make a separate decision whether they wish to distribute trust funds to the beneficiary to assist them with their rental cost. This then ensures any distribution is dealt with formally and is transparent to all the other beneficiaries.

Mark Withers

pfkwt.co.nz