ATO Interpretative Decision

ATO ID 2002/363 (Withdrawn)

Income Tax

Rental Property - proportion of deductions claimable
FOI status: may be released
  • This ATOID is withdrawn as the interpretative issue covered in Taxation Ruling TR 95/33 and Taxation Ruling TR 93/32.
    This document has changed over time. View its history.

Status of this decision: Decision Withdrawn 4 November 2005
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the taxpayer is entitled to claim the full amount of the interest paid on a mortgage for a rental property under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) when listed on the title deed as the sole owner, but the mortgage is held in joint names with the taxpayer's spouse?

Decision

Yes. The title deed determines the percentage of the claim for loan interest expenses in most cases. As the taxpayer is entered on to the title deed as the sole owner, they are entitled to claim the full amount the loan interest expense under section 8-1 of the ITAA 1997.

Facts

The taxpayer is shown on the title deeds of a property as the sole owner. The property is being used as a rental property.

The mortgage for the property is held jointly with the taxpayer's spouse.

Reasons for Decision

Section 8-1 of the 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.

Interest paid on a mortgage over a rental property is considered an allowable deduction for the purposes of section 8-1 of the ITAA 1997.

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 (paragraph 6). It goes on to explain at paragraph 41, that where taxpayers are related, for example, husband and wife, the equitable right is presumed to be exactly the same as the legal title.

A person's legal interest in a property is determined by the legal title to that property under the land law legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deeds for the property issued under that legislation.

The taxpayer is shown on the title deeds to the rental property as the sole owner. Thus, the loss or income from the rental property must be shown solely by the taxpayer.

Where the title deed indicates sole ownership of a property, and the mortgage is held in joint names, the legal owner can claim the full amount of the interest paid. The fact that the other party to the mortgage may have paid some of the mortgage expenses is of no consequences for income tax purposes. The ATO treats the payment of the other party's share of the expenses as no more than a loan from the other party to the taxpayer (Taxation Ruling TR 93/32 paragraph 49).

The taxpayer's spouse is a party to the mortgage over the taxpayer's property. The ATO regards any mortgage payments made by the taxpayer's spouse as a loan to the taxpayer.

The taxpayer is the sole owner of the rental property for income tax purposes and therefore the mortgage interest payments are available in full to the taxpayer under section 8-1 of the ITAA 1997.

Date of decision:  26 February 2002

Legislative References:
Income Tax Assessment Act 1997
   Section 8-1

Related Public Rulings (including Determinations)
TR 93/32

Keywords
Rental property
Interest expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 March 2002

ISSN: 1445-2782

history
  Date: Version:
  26 February 2002 Original statement
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