Private ruling: Life interest
Published: March 2015
Ruling period: Year ended 30 June 2014 - Year ended 30 June 2019
Date scheme commenced: 1 July 2013

Ruling: Q1: Is Individual A assessable on 100% of the income earned from the rental property in which she/he holds a life interest? | A1: Yes. | Q2: If the answer to question 1 is yes, is Individual A entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred for a rental property in which you hold a life interest? | A2: Yes.

Relevant facts and circumstances: The deceased passed away in 20XX. Probate for the deceased's will was granted in 20XX. In the will, there were several named beneficiaries. The capital assets of the estate were not to be dealt with until after Individual A's lifetime. The beneficiaries were also executors of the estate. One of the assets was a property in which Individual A was granted a life interest. Individual A is required to maintain the property at their expense. Individual A is also required to pay all rates and taxes associated with the property. Individual A is no longer able to live alone. They moved out of the property and moved into a retirement village closer to family. The property is now being rented to tenants.

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

Reasons for decision: Summary: Taxation ruling TR 2006/14 deals with the consequences of creating life and remainder interests in property. Paragraph 183 states that: A life interest in an asset entitles the owner of that interest to any income from that asset. In this case, Individual A has a life interest in the property. Therefore, 100% of the income generated by the property is assessable to Individual A and not Individual B. 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. In this case, Individual A has incurred expenses such as rates and insurance in relation to the property. These expenses have been incurred in the course of producing assessable rental income. Therefore, Individual A is entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.