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 Taxation Board of Review held that a 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, the amount of rent reflecting an arms-length agreement. In such a case, the rent would be assessable income in the hands of the recipient.

The taxpayer rents the property to their co-owner at a commercial rental. The rent received is assessable income under section 6-5 of the ITAA 1997.

Accordingly, the taxpayer may deduct under section 8-1 of the ITAA 1997 any losses or outgoings incurred in gaining or producing the rental income - that is, where relevant, the taxpayer's share of such losses or outgoings in relation to the property - provided the losses or outgoings are not capital or of a capital, domestic or private nature.