Private ruling: Rental deductions
Date of advice: 22 September 2023
Published: 30 October 2023
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the income you receive from a third party as payment for renting common property on your apartment block that is applied for your benefit to reduce the amount of body corporate fee you are charged for your investment unit assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Income from common property that forms part of a strata title arrangement is income according to ordinary concepts. Taxation Ruling TR 2015/3 Income tax: matters relating to strata title bodies constituted under strata title legislation confirms that income from common property is assessable to the proprietors, and subsection 6-5(4) of the ITAA 1997 applies to include amounts as assessable income the extent that the money is applied or dealt with for the benefit of the proprietor. You are a proprietor of a unit under a strata title and receive income from a third party as payment to rent common property of the unit complex. Your assessable income includes the income you are taken to have received from Telstra because it is applied on your behalf. | Q2: Can you claim a deduction for the portion of body corporate fees which have been reduced by the application of the income you receive from rental of common property on your apartment block under section 8-1 of the ITAA 1997? | A2: Yes. Section 8-1 allows a deduction for all expenses to the extent which they are incurred in the gaining of assessable income, except where the expenses are capital, private, or domestic in nature. The body corporate fees you incur, including the component which your body corporate pays on your behalf using your income received from Telstra, have been incurred in the course of renting out your investment unit. The quantum of the expense is not altered as a result of your assessable income being applied to reduce the out-of-pocket charges you receive. Therefore, you can deduct the full amount of the owner's corporation fees including the component which your body corporate has paid using your income from Telstra under section 8-1 of the ITAA 1997.

Relevant facts and circumstances: You own an investment unit in an apartment building that is part of a strata scheme. Your certificate of title includes the unit and an undivided share in the common property for the time being described on the plan. The unit is leased and solely used to produce rental income. The strata scheme produces rental income from leasing the common roof space to a third party, this arrangement has been in place for many years and is likely to continue for the foreseeable future. This income is shared amongst the proprietors according to their ownership percentage. You receive a portion of the income according to your percentage of ownership of the common property. You incur body corporate fees as an expense of owning your investment unit. The common property rental income is not paid to property owners directly. The body corporate of your investment unit applies this income directly to your body corporate fees and reduces your quarterly out-of-pocket charge.

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