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Authorisation Number: 1011942921770

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Ruling

Subject: investment property deductions

Question:

Can you claim a deduction for a portion of the interest you pay on a joint loan which was used to purchase an investment property in your spouse's name, along with other outgoings associated with the property?

Answer: No

Relevant facts

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Your spouse contracted to purchase a rental property off plan in 20XX in their name alone as an investment property.

The property was financed with two loans, one of which was secured by an existing property held jointly in your spouse's name and yours.

Both loans were to be serviced by your spouse's income, and they was going to claim deductions for expenses associated with the property.

You had other debts you were servicing in your name.

In 20XX you and your spouse separated, and they took up a new job at a reduced income.

The property was being built at this time and as the loan interest increased, your spouse was unable to afford the interest payments by herself.

Because the loans were in joint names you were required to pay half of the interest cost.

You have contributed a large amount in payments and continue to pay half the shortfall after rental income. You intend this to continue until you can agree on a property settlement on separation.

The property was completed and tenanted in 20XX.

A tenant was found by a real estate agent, and rental income is paid into your spouse's bank account.

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 states that the net income or 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.

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.  

In your case, the legal title of the property is in your spouse's name.

You are currently funding half the shortfall after rental income of the property yourself, as your spouse cannot afford to.

While we accept that you are paying some interest and other expenses relating to the property, this does not mean that the equitable interest in the dwelling is different from the legal interest. The expenses are not incurred in gaining your assessable income. These payments are a private arrangement. Therefore, you are not entitled to claim any deductions either for interest paid on the loan or other outgoings for the property.