Private ruling: Rental property expenses
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and answer | Are you entitled to claim rental property expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) against rental income received from a relative who lives in the property? | Yes


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

Reasons for decision: Detailed Reasoning - Rental income and 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. ATO ID 2010/193 Rental property expenses: co-owner rents the property states that a taxpayer's share of expenses can be claimed under section 8-1 of the ITAA 1997 against rental income received from their co-owner who lives in the property, when an amount of rent reflects an arm's length agreement. A person is said to be dealing at arm's length with someone if each party acts independently and neither party exercises influence of control over the other in connection with the transaction. In your case, you are purchasing a share of your relative's house at current market value and your relative will retain the remaining interest and continue to live in the property. You will charge your relative rent at current commercial rates in accordance with your share in the property, as if it were an arm's length agreement. Therefore, the rent received is assessable income under section 6-5 of the ITAA 1997. Accordingly, you may deduct under section 8-1 of the ITAA 1997 any losses or outgoings incurred in gaining or producing the rental income - that is, where relevant, your share of such losses or outgoings in relation to the property - provided the losses or outgoings are not capital or of a capital, domestic or private nature.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: Your relative currently owns her home. | You are considering purchasing an ownership interest of your relative's house at current market value. | You will establish the current market value of the house using an independent valuation. | Your relative will continue to live in the property as a tenant and pay you rent equal to your ownership interest of the normal commercial market rate. | All expenses relating to the property will be shared according to you and your relative's interests. | You will not live in the property.