Private ruling: Rental property expenses
Published: October 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for X% of the rental property expenses? | A1: No.

Relevant facts and circumstances: You and your partner intend to purchase a property which will be used to earn rental income. The mortgage for the property will be held jointly between you and your partner. The mortgage repayments will be made from a joint bank account owned and contributed to by you and your partner. You will pay X% of all expenses related to the rental property. You partner will have legal title of the property as sole owner. Your name will be omitted from the title for administrative ease.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing income except where the outgoings are of a capital, private or domestic nature. Taxation Ruling TR 93/32 deals with the division of net income or loss between rental property co-owners. A rental property owner is required to return income and expenses in relation to their rental property in the same proportion as their ownership interest. Generally, the profit or loss should be shared according to the legal interests of the owners. If the equitable interest does not follow the legal title, there is some basis for the profit or loss to be distributed on the equitable and not the legal basis. However, paragraph 41 of TR 93/32 states the following: We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title. In this case, you and your partner intend to purchase a rental property. However, the legal title will be solely in the name of your partner. You have advised that you will be omitted from the title for administrative ease. Given the nature of your relationship we consider that the equitable ownership of the property is exactly the same as the legal title. As legal title to the property will be held solely by your spouse, you will not have a legal or equitable interest in the property. Therefore, you are not entitled to a deduction for X% of the rental property expenses.