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Edited version of your private ruling
Authorisation Number: 1012300010013
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Ruling
Subject: Rental property expenses
Question
Are you entitled to a deduction for 100% of the net income loss on two jointly owned investment properties?
Answer
No
This ruling applies for the following period
Year ended 30 June 2006
Year ended 30 June 2007
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on
1 July 2005
Relevant facts and circumstances
You purchased two rental properties with both you and your spouse's name on the title deeds.
You obtained joint borrowing for the purchases.
You solely funded the purchase of the property. You will continue to fund the properties exclusively.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
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.
Taxation Ruling TR 93/32 discusses the division of net income or loss between co-owners of a rental property. The ruling 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 (or beneficial) interest is different from 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 deed for the property issued under that legislation.
Both you and your spouse's name are on the title deeds and loan agreements. Net income and expenses should be shared in the same proportion as their ownership interests i.e. 50:50. The fact that you have paid all the expenses on the property is of no consequence for income tax purposes.
Therefore you are not entitled to a deduction for 100% of the net income loss used to purchase the rental properties.
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