Edited version of private ruling

Authorisation Number: 1011628912257

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Ruling

Subject: Rental property expenses

Are you entitled to claim a deduction for 100% of the expenses of your jointly owned rental properties?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You and your wife jointly own two rental properties. Your wife left you at which time she stopped contributing to any repayments on the properties. Since that time you have made all mortgage repayments, and paid all rates, insurance and maintenance expenses.

All payments came from a joint account which had a nil balance, and you alone have made contributions to this account since then. You have statements to verify this.

You have a Family Law Court order which states that the matrimonial home and the two investment properties are to be sold.

The order states that you have sole responsibility for making the minimum mortgage payments on both rental properties.

The order also states that the rental income from each property will be directly deposited into each rental property.

The order makes no statement as to the percentage of expenses which may be claimed by you.

Reasons for decision

Ownership interest in rental property

Taxation Ruling TR 93/32 states that a legal interest in property is achieved by the owner being the registered proprietor of the legal title to the land.

According to TR 93/32, the income/loss 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.

Legal and equitable interests

In certain circumstances, agreements between co-owners and Family Court orders dealing with settlement of joint owned property may alter the equitable interest of the co-owners from the date of that agreement or order (their legal interests in the property would not change until the relevant legal title is transferred).

In your case, the Family Court order made no direction on a change of title of the properties.

Therefore, there is not sufficient evidence in your case to establish that your equitable interest in the property is different from your legal interest.

Division of net rental income or loss

The net income or loss from your rental properties must be shared according to the legal interests of you and your wife. As joint tenants you own the property in equal shares, so the net rental income or loss must be shared equally.

We acknowledge that you solely contributed and paid all the expenses in relation to the investment properties. However, paragraphs 48 and 49 of TR 93/32 provide an example which is similar to your situation. At paragraph 49 it explains that net profits and losses from the property should be shared in the same proportion as their ownership interests. The fact that one taxpayer has paid all the expenses on the property is of no consequence for income tax purposes.

As the names of you and your wife are on the title deed, you are both legal co-owners of the rental property and therefore, you are each assessable on your share of income less expenses of the joint property.