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Edited version of private advice
Authorisation Number: 1051781637073
Date of advice: 18 November 2020
Ruling
Subject: Rental property - proportion of deduction claimable for interest on loan
Question
Are you entitled to claim 100% of the interest paid on a loan for a rental property under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) when you are listed on the title deed as the sole owner, but the loan is held in joint names with your spouse?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You acquired an investment property in 20XX.
The property was acquired solely in your name.
A bank loan was obtained to acquire the property.
The bank has a mortgage over the property.
Interest is paid on the loan.
The loan is held in joint names with your spouse.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that the outgoings are of a capital, private or domestic nature.
Interest paid on a mortgage over a rental property is considered an allowable deduction for the purposes of section 8-1 of the ITAA 1997.
Taxation Ruling TR 93/32 deals with rental properties and the division of net income or loss between co-owners.
Paragraph 6 of TR 93/32 states that the loss or income 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.
Paragraph 38 says that if the equitable interest does not follow the legal title, there is some basis for the profit/loss to be distributed on the equitable and not the legal basis.
However, paragraph 41 says that we will assume where taxpayers are related, for example, husband and wife, that the equitable right is exactly the same as the legal title.
Application to your circumstances
You acquired an investment property solely in your name.
You and your spouse took out a joint bank loan to purchase the investment property.
As the sole legal owner of the investment property, only you can declare the rental income derived and claim a deduction for the interest paid on the loan used to purchase it.
You are entitled to claim a deduction under section 8-1 of the ITAA 1997 on 100% of the interest, even though the loan is held in joint names with your spouse.
You are also assessable on 100% of the rental income derived from the property under section 6-5 of the ITAA 1997.