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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012448069441

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Ruling

Subject: Rental property expenses

Question

Are you entitled to claim 100% of the expenses from your co-owned rental property?

Answer

No

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You are a co-owner of a rental property.

You are paying all the bills as the other co-owners are refusing or are not capable of paying their share of the rental property expenses.

You and the co-owners have an interest only loan on the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Taxation Ruling TR 93/32 explains that the net loss or income 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. An example of where the equitable interest may differ from the legal interest is when an owner is holding their share as trustee for the other owner.

A person's legal interest in a property is determined by the legal title to that property under the land legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation.  

Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between the co-owners, either oral or in writing stating otherwise.

Where a co-owner forgoes their share of the rental income and/or pays for all the expenses this is considered to be a private arrangement between the co-owners. It does not alter the fact that they are legally entitled to their share of the income and liable for their share of the expenses.

In your case, you are a co-owner of a rental property with another couple. The other co-owners refuse or are not capable of paying their share of the expenses and you are left to pay all the bills. As stated above this decision is a private arrangement between yourselves.

Therefore, you must declare the income and claim the deductions with respect to the property in proportion with your legal interest in the property. The fact that one co-owner is paying all the expenses from the property is of no consequence for income tax purposes.