Edited version of private advice

Authorisation Number: 1051981801128

Date of advice: 19 May 2022

Ruling

Subject: Rental property ownership

Question

Are you able to claim a full deduction for the costs associated with the property where you share title ownership with an ex-partner?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your ex- partner purchased a property.

Due to structural issues the property evacuated.

You and your ex- partner separated and a Financial Agreement under section 90UD of the Family Law Act 1975 (the agreement) was entered into on the XXXX.

The property was considered on page X of the agreement.

Due to the structural issues with the property, you have not been able to successfully secure refinance for the property from any financial institutions.

These structural issues have also precluded you from selling the property in accordance with the agreement.

You have been receiving the rental income associated with the property and have declared this on your income tax returns.

You have also been paying all expenses for the property with no assistance from your ex-partner.

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 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.

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners explains that the 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.

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.

TR 93/32 provides the following example:

Mr and Mrs Y purchase a rental property. Mr Y contributed 80% of the funds used to purchase the property while Mrs Y contributed 20%. They register their purchase as joint tenants. They also sign a written agreement to share any profits or losses from the property in accordance with their capital contributions, but share interests in the property equally.

Owning and renting out the one property does not amount to carrying on a business. Mr and Mrs Y are not partners at general law although their relationship is treated as a partnership for income tax purposes. Net profits and losses from the property should be shared in the same proportion as their legal ownership interests, i.e., 50:50. Their agreement to share the profits and losses in proportion to their capital contributions is a private arrangement which has no effect for income tax purposes.

In your case, you entered into ownership of a property with your ex-partner and have since separated. Due to structural issues at the property, you have not been able to secure refinance to become the sole owner and are also unable to sell the property. You pay the expenses associated with the property and your ex-partner does not assist you with these costs. You have written to the Commissioner asking that if in your circumstances, can you be permitted to claim all the expenses as a deduction on your income tax return and not share the expenses with your ex-partner as per ownership interests of the property.

Currently there is no provision within the ITAA 1997 that will allow a taxpayer to claim expenses for a property more than their ownership interests.

It should be noted that the Commissioner can only apply the law as set out in the tax legislation, which is created by Federal Parliament, and by precedents set down by the Administrative Appeals Tribunal, the Federal Court and the High Court.

The Commissioner is bound by the law and does not have the discretion to allow a claim if the expense does not fall within the legislation.