Renting property to family, page-8

charging rent at market rate is a matter to be considered although it may not always work out as you apportioned. there was an old legal case (Kowal, in lowly Supreme Court), which is still current in the ATO ruling, where the court allowed 80% of the deductions even though the rent paid was 20% of market value:

http://law.ato.gov.au/atolaw/print.htm?DocID=ITR/IT2167/NAT/ATO/00001&PiT=99991231235958&Life=19850704000001-99991231235959
http://law.ato.gov.au/atolaw/view.htm?locid='JUD/84ATC4001'&PiT=99991231235958

that said, Kowal is a pre-CGT case so a court may see differently now since capital gains may be distinguished from rental income as the source of 'earning assessable income' (in other words, interest may be placed on the CGT cost base if it is determined the primary purpose of the property is for capital gain rather than rental income)

there was Fletcher's case in 1995 (after Kowal) in the High Court where deductions were only allowed up to the amount of assessable income derived: http://law.ato.gov.au/atolaw/print.htm?DocID=TXR/TR9533/NAT/ATO/00001&PiT=99991231235958&Life=19951004000001-99991231235959

so charging rent at non-market value may result in negative gearing being disallowed under the Fletcher principle established in the High Court

to end, it is always safest to charge market rate of rent, as you recommended