Private ruling: Rental properties
Date of advice: 18 May 2016
Published: June 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for the full amount of expenses you have paid in relation to your rental properties? | A1: No | Q2: Are you entitled to a deduction for the expenses relating to your rental properties in proportion to your legal ownership interest? | A2: Yes

Relevant facts and circumstances: You own a rental property jointly with your spouse. You have a 50% ownership interest in the rental property.

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 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 TR 93/32 explains that the loss or income from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between the co-owners, either oral or in writing stating otherwise. In your case, you have a 50% ownership interest in the rental property. Therefore, for tax purposes, the total expenses must be shared according to the proportion of the legal interest in the property held by you and the other owner of the property, regardless of who paid for the expenses. This means that you can only claim a deduction for the proportion of the total expenses that is equivalent to your 50% proportion of legal interest in the property. Likewise, you can only include in your assessable income the income that is equivalent to your 50% proportion of legal interest in the rental property.