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

Ruling: Question and answer: | Are you entitled to claim 100% of the allowable deductions on a rental property after you have been granted full ownership rights by the Family Court when the title is still in joint names? | Yes.

Relevant facts and circumstances: You have been granted full ownership rights of a rental property as set down in the Minute of Consent Orders (the Orders) issued by the Family Court. The ownership title was (and remains) in joint names: X% to your former spouse and Y% to you. The Orders were signed by all parties on a date. In line with the Orders, you have been paying the mortgage and all variable outgoings on the rental property since a date after that date. You have been unable to transfer the legal title to 100% in your name due to not meeting the bank's requirements for servicing the loans. At present, you are loaning all monies associated with the properly from relatives. As per the Orders, you have been responsible for making all financial contributions to cover interest payments for all three loans associated with the property. This amounts to current $X.XX in this income year. You have provided evidence of this in the form of bank statements. Relevant legislation provisions: Income Tax Assessment Act 1997 Section 8-1


Reasons for decision: Detailed Reasoning - Division of net rental income or loss between co-owners: Section 8-1 of the Income Tax Assessment Act (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 TR 93/32: Income tax: rental property - division of net income or loss between co-owners explains the basis upon which the ATO will accept, for income tax purposes, the division of the net income or the loss from a rental property between the co-owners of that property whose activities do not amount to the carrying on of a business. Persons who own two or three rental properties would not normally be considered to be carrying on a rental property business. Paragraphs 38 to 41 of Taxation Ruling TR 93/32 address the legal and equitable interests issue confirming at paragraph 41 that there are extremely limited circumstances where the ATO will accept that the equitable interest is different from the legal title. Where the taxpayers are related the ATO will assume that the equitable right is exactly the same as the legal title. Therefore, as you were related to your ex-spouse, it is assumed that your legal and equitable interests are in parallel unless you can show that they were different. You provided a copy of the Orders issued under the Family Law Act 1975 which sets out how the joint assets of you and your ex-spouse were divided . The Order is dated. The Orders provided that your former spouse transfer to you their right, title and interest in the rental property and you indemnify them in relation to the mortgages and other outgoings of the property. You have been unable to transfer the legal title to 100% your name due to not meeting the bank's requirements for servicing the loans. The property remains legally in joint ownership with your former spouse. However, the Orders issued under the Family Law Act 1975 effectively confirm your 100% beneficial ownership even though the legal ownership in the investment property is still registered in joint names. Accordingly, it is accepted that your beneficial ownership (100%) remains different from your legal ownership (Y%) from the date of the Orders. Therefore, from the date you signed the Orders the property is considered to be yours and, if the property is rented or available for rent, you are entitled to claim interest and other allowable rental property expenses you have incurred in relation to the investment property from this date.

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