1011515448944 | Legal database

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Edited version of private ruling

Authorisation Number: 1011515448944

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Ruling

Subject: Assessability of amounts received

Question:

Are amounts you receive from your spouse, purporting to be interest payments, to be included in your assessable income?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

You are in receipt of a tax free defined benefit superannuation payment and a part pension, as well as some interest income.

Your spouse receives rental income, a carer's pension and some interest income.

You and your spouse have a disabled minor child.

You and your spouse purchased an investment property. You contributed approximately X% of the purchase price and your spouse contributed approximately Y%.

The legal title of the investment property is in the name of your spouse only. This was to ensure the property would not be included in your estate and the capital and income from the property would be available to your spouse and child should you pass away before them.

You also intended that the income would benefit you, your spouse and your child during your life time; with the income from the property being paid into a joint account and all rental property expenses being paid from the same account.

You now wish to treat your X% contribution to the purchase price of the property as a loan a receive interest payments from your spouse to supplement your income; however, you do not want to enter into a formal loan agreement that will ultimately form part of your estate.

The amount of interest to be paid by your spouse may change over time and would be decided on a year by year basis.

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 provides that the assessable income includes income according to ordinary concepts that was derived by you. Interest received is generally considered to be ordinary income.

In your case, you provided approximately X% of the purchase price of the rental property, legally registered in your spouses name only, by way of advancement, to ensure the property would not be included in your estate when you pass away. The main reason for this was so that your spouse will retain both the capital and income benefits of the property for the support of their and your child when you are gone.

What you are now proposing is to treat your contribution to the purchase price of the property as a loan in order to receive payments from your spouse to supplement your income as a way of splitting the rental income they receive; however, you do not want to enter into a formal loan agreement that will ultimately form part of your estate.

As there was no loan agreement at the time you made the contribution to the purchase price of the property, it cannot now be treated as a loan for taxation purposes. Your contribution to the purchase price of the property is considered to be a private and domestic arrangement and not a commercial one.

As your spouse is the legal owner of the property, the net income or loss from the property for tax purposes is theirs alone. You have already stated that the rental income is deposited into a joint account and is available for use by both of you.

Any amounts you receive from your spouse purporting to be interest on your contribution to the purchase price of the rental property are not ordinary income and are not included in your assessable income as they are considered to be part of a private and domestic arrangement.

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