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Edited version of private ruling
Authorisation Number: 1011584803560
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Ruling
Subject: Rental property expenses
Questions and answers:
Are you entitled to a deduction for 100% of the investment property expenses where you are a joint owner of the property in equal shares with your spouse?
No.
Do you include 100% of investment property income where you are a joint owner of the property in equal shares with your spouse?
No.
Are you entitled to a deduction for 50% of the investment property expenses where you are a joint owner of the property in equal shares with your spouse?
Yes.
Do you include 50% of investment property income where you are a joint owner of the property in equal shares with your spouse?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You and your spouse jointly own an investment property in equal shares, that is, 50% each.
You pay for 100% of the expenses relating to the investment property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 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 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.
You and your spouse co-own as joint tenants an investment property. You pay all the expenses related to the investment property. This is not sufficient to establish that equitable interest is different from 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.
Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between the co-owners, either oral or in writing stating otherwise.
Where a co-owner pays for more than his or her share of the expenses, this is considered to be a private arrangement between the co-owners. It does not alter the fact that they are only liable for their share of the expenses.
In your case, you and your spouse co-own an investment property. This means you each held a 50% interest in the property. Although you paid for 100% of the rental property expenses, the total expenses must be shared according to the proportion of the legal interest in the properties held by you and your spouse.
The Commissioner does not have any discretion under the tax law to allow a taxpayer to claim more or less than their legal entitlement to investment property income and expenses.
Therefore, you can only claim a deduction for the proportion of the total expenses that is equivalent to your 50% proportion of legal interest in the property, and you can only include in your assessable income the income that is equivalent to your 50% proportion of legal interest in the rental property.
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