Private ruling: Rental income
Published: February 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you able to declare income in your tax return for a property that is not generating income? | A1: No. | Q2: Are you entitled to claim deductions in relation to a property that is not generating income? | A2: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have purchased an investment property with a friend. Your friend will live in the property. You wish to claim your share of the expenses associated with the property. Your friend will not be paying you rent.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Rental income Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that for an Australian resident, assessable income includes ordinary income derived directly or indirectly from all sources whether in or out of Australia. Rental income is generally assessable as ordinary income. In order for income to be assessable, it has to be derived. The issue of notional rent was considered in Case W117 89 ATC 919; AAT Case 5502 21 ATR 3057 (Case W117). In that case the taxpayer owned a property which his daughter occupied rent-free, apart from payment of some of the property's expenses. The taxpayer claimed a rental loss from the property based on a notional rental income, which was the taxpayer's estimate of an appropriate commercial rental. It was held that as the taxpayer did not derive any income from the property, neither the notional income nor the expenses of holding and maintaining that property were relevant for the purpose of his taxation assessment. It was also held that the whole arrangement had a familial character and had nothing to do with transactions of the kind which result in the receipt of income as understood in ordinary usage. You have stated that you purchased the property with a friend to help them out. Your case is similar to Case W117. No income from the property will be derived; derivation being an essential component of income. Since you will not derive any income from the property you can not include any income from the property in your assessable income. Rental deductions Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. To be deductible under this section an expense must have the essential character of an expense incurred in gaining or producing assessable income or, in other words, of an income-producing expense. As no income is being generated from the property, no deductions are allowable in respect of losses or outgoings incurred in connection with the property.