Rental Property Expenses - Co-owner rents the property

Can the taxpayer's share of rental property expenses be claimed under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) against rental income received from their co-owner who lives in the property?

Yes. The taxpayer's share of expenses can be claimed under section 8-1 of the ITAA 1997 against rental income received from their co owner who lives in the property.

The taxpayer owns a property as tenant in common with another person. The taxpayer has a legal interest in the property of 50 per cent.

The taxpayer's co-owner lives in the property.

The taxpayer does not live in the property.

The taxpayer's co-owner pays $70 per week to the taxpayer to live in the property. Commercial rent in the area is $140 per week.

Section 8-1 of the 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.

In Case R16 84 ATC 179; 27 CTBR (NS) Case 67 the judge held that one tenant in common can lease premises from their co-tenant in common (so as to have exclusive possession) and be liable to pay the amount reserved by the lease, such amount being assessable income in the hands of the recipient. The amount of rent being paid equal to that of a fully arms length transaction.

The taxpayer rents the property to their co-owner at commercial rental. The income derived from the rent received will be assessable under section 6-5 of the ITAA 1997. Expenses incurred by the taxpayer in deriving that income will therefore be deductible under section 8-1 of the ITAA 1997.