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Edited version of your written advice
Authorisation Number: 4130043699295
Date of advice: 28 March 2018
Ruling
Subject: Deduction for interest on a loan for rental property
Question
Are you entitled to a deduction for 100% of the interest expenses incurred on a co-owned property where the loan is solely in your name?
Answer
Yes.
When considering the tax implications of a rental property, an important element is ownership. It must be determined who is the owner of the asset.
Ownership conveys an entitlement to exercise the maximum legally permissible rights over what is owned. In the absence of evidence to the contrary, property is considered to be owned by the person(s) registered on the title. However, in limited circumstances, it is possible for legal ownership to differ from beneficial/equitable ownership for taxation purposes.
According to Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners, the income/loss from the 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.
In your case you co-own an investment property with your parent, but the loan is in your name only and repaid solely by you. It is accepted that the equitable and legal interest is different in your circumstances.
In your case as the equitable owner, you inherent all the benefits and burdens associated with the property. You should report all of the income and expenses of the rental property in your income tax return. You should also report any capital gains tax when selling the property based on your beneficial ownership.
Therefore, you are able to claim 100 percent of all allowable deductions and declare all income associated with your rental property. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Rental income is ordinary income and is assessable under section 6-5 of the ITAA 1997. Expenses incurred in producing rental income are considered to be an allowable under section 8-1 of the ITAA 1997. In your case the income earned from the rental property and any expenses incurred can be allocated 100 percent to you.
This ruling applies for the following period:
1 July 2013 to 30 June 2016
The scheme commences on:
1 July 2013
Relevant facts and circumstances
● You are a co-owner of a rental property with a relative.
● The title for this property is held on a joint basis.
● The loan for the property is in your name only and the repayments are made solely by you.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 6-5
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