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Edited version of your written advice
Authorisation Number: 1012740024877
Ruling
Subject: Former rental property
Question 1
Are you entitled to claim a deduction for expenses incurred for the property while living there?
Answer
No.
Question 2
Is a notional rent amount equal to the amount of rent that would have been received during the period you lived in the property regarded as assessable income?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2011
Relevant facts
You and your former partner separated.
You were forced to move out of the marital property and subsequently moved into the jointly owned rental property.
The rental property had been rented for five years.
You were hoping for a quick separation and settlement however the process dragged on for some time.
During this time while you resided in the rental property you paid the expenses, including the mortgage, relating to the property. You also paid the mortgage on the marital home and additional child support.
You were unable to sell or rent the rental property before the court order, as your former partner would not co-operate and sign the relevant documents.
A consent order was granted.
Under the consent order, your former partner is to transfer to you all of their right, title, estate and interest in the rental property.
The settlement of the rental property has now occurred.
You are still living in the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Rent is regarded as ordinary assessable income. Any rent that is received when you rent out a property is included in your assessable income.
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.
You can only claim the relevant expenses for a rental property for the period the property is rented or is available for rent.
Following separation, you moved into the property. Therefore the property was not rented or available for rent.
It is acknowledged that you were unable to sell or rent the property during the dispute, however, it remains that the property was not rented while you lived there. Any income or expenses in relation to the property are private in nature and are not included on your tax return.
Furthermore, while you were living at the property, it cannot be said that you received any rent. The principle of mutuality recognises that one cannot make a profit out of oneself and that income can only be derived from sources from outside oneself. That is, you cannot pay rent to yourself in relation to a property owned by you. While it is acknowledged you paid for all the expense in relation to the property, your former partner's share of the expenses cannot be regarded as rent received.
For tax purposes, what is considered is what actually happened rather than what could have happened. The fact that the property may have been rented had it not been for the separation and dispute has no impact for tax. As the property was not rented, no deductions are allowed for the period you were living in the property.
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