Private ruling: Renting property to co-owners
Published: January 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Can your share of rental property expenses be claimed against rental income received from the co-owners who live in the property? | A1: Yes.

Relevant facts and circumstances: You and other co-owners are tenants in common in an investment rental property. The property has been continually rented at market value and the last lease ended recently. The other co-owners intend to live in the property for a period of time and rent your share of the property from you based on the rental rate from the last lease. The other co-owners will pay you a percentage of the market value rent according to the percentage of your share in the property. Rent adjustments would be made in line with any future increases in the rental market value.

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

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (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. In Case R16 84 ATC 179; 27 CTBR (NS) Case 67 the Board of Review held that one 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. Such amount is assessable income in the hands of the recipient, the amount of rent being paid equal to that of a fully arms length transaction. Where a taxpayer rents property to their co-owner at a commercial rate of rent, the income derived from the rent received will be assessable under section 6-5 of the ITAA 1997. Expenses incurred by the taxpayer in deriving that income will be deductible under section 8-1 of the ITAA 1997. 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. Consequently, as you will be receiving a commercial rate of rent from the other co-owners, the income you receive in respect of your percentage interest in the rental property is assessable income under section 6-5 of the ITAA 1997 and you are entitled to claim the same percentage of the deductible rental property expenses.

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