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Ruling

Subject: Rental property expenses

Question

Are you entitled to claim 100% of the rental property expenses when you were made sole trustee for the sale of the property by the Court and you were not reimbursed the expenses by the co-owner of the property?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You and Person X co-owned a house.

Person X entered a lease agreement with tenants without you co-signing the agreement as an owner of the property.

Shortly after, the Courts ordered you to pay all loan arrears, council and water rates relating to the property.

Under the order you were required to pay for all repairs and improvements, make loan repayments and pay rates and insurance for the house. Upon the sale of the house, you were to be reimbursed by Person X half of these expenses less any rent or rates payments received.

Between the time of the order and the end of the tenancy you incurred various expenses relating to repairs of the house.

You were not reimbursed by Person X for any of the expenses incurred.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

You are not entitled to a deduction for 100% of the rental property expenses as you are not the sole owner of the property. You may only claim a deduction in accordance with your legal ownership interest in the property.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (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, or relate to the earning of exempt income or a provision of the taxation legislation excludes it.

In general, a landlord is assessable on rental income and may claim deductions for losses and outgoings incurred in gaining that income.

Taxation Ruling TR 93/32 states, in paragraph 6, that the net income/loss from a rental property must be shared according to the legal interest of the owners, except in 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 the property is situated. The legal owner of the property is recorded on the title deeds for the property issued under that legislation.

You and Person X were the co-owners of the property during the period it was rented. As such, all rental expenses should be claimed according to your legal ownership share on the property's title deed.

Whilst the Court appointed you trustee for the sale of property it did not make you the sole owner, beneficial or legal, of the property. As trustee you have a responsibility to the beneficiaries to maintain and sell the property in accordance with the Court Order. The beneficiaries are Person X and yourself, as evidenced by the distribution of the sale proceeds.

The fact that Person X did not reimburse you for any of the expenses incurred even though this was a requirement of the Family Court Order does not make the expenses fully deductible to you.

You are entitled to a deduction for your share of the rental property expenses. Your deduction is calculated according to your legal interest on the title deed of the property.