Private ruling: Rental income and deductions
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the rent you will receive from the co-owner of your property assessable income? | A1: Yes. | Q2: Are you entitled to a deduction for your share of expenses relating to the rental property? | A2: Yes.

Relevant facts and circumstances: You and your spouse jointly purchased an investment property and it has been rented out since the purchase date. You are in the process of separation and your spouse will move into the rental property. Your spouse will pay you half the market rent price.

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 is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). 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. Taxation Ruling IT 2167 discusses the Commissioners views on whether rent from a residential property is assessable income. There are situations where payments that are described as rent are not assessable income. This is particularly the case where the arrangement is not conducted at arm's length. In Case R16 84 ATC 179; 27 CTBR (NS) Case 67 the Taxation Board of Review held that a tenant in common can lease premises from their co-tenant in common (so as to have exclusive possession) and be liable to pay the amount reserved by the lease, and this amount is assessable income in the hands of the recipient. In such circumstances, the amount of rent being paid must be equal to that of a fully arms length transaction. Taxation Ruling TR 93/32 states in paragraph 6 that the income/loss from a rental property must be shared according to the legal interest of the owners, except in very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. In your case, you will be receiving a commercial rate of rent from the other co-owner. 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 your share of any losses or outgoings in relation to the property provided the losses or outgoings are not of a capital, domestic or private nature.