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

Ruling: Q1: Should the net income or loss from the rental property be shared in accordance with the legal title? | A1: Yes

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. Mr A purchased a rental property with his sibling as tenants in common with equal shares. The purchase was funded by a borrowing. Mr B subsequently purchased the sibling's half share of the rental property at market rates. The purchase was funded by a borrowing. Mr A retained their half share. Given an increase in market value since the initial purchase by Mr A and the sibling, Mr B's borrowing used to acquire their half share is larger relative to Mr A's half share borrowing.

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 you a deduction for any loss or outgoing that is incurred in gaining or producing your assessable income, to the extent that it is not of a private, capital or domestic nature. The net income or loss 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: Taxation Ruling TR 93/32. In your situation, you each own an equal share in the property as tenants in common and therefore any income and shared expenses relating to the property are divided equally between you both for tax purposes. The fact that you both paid different amounts for your respective half share in the property does not affect this splitting of income and expenses. The disparity of your purchase amounts is as a result of your purchasing your respective (equal) shares at different times and at a different prevailing market value. Accordingly, the net income or loss from the rental property should be shared in accordance with the legal title.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.