Deductions for rental properties allowed

The Administrative Appeals Tribunal (AAT) has set aside a decision of the Commissioner to disallow a taxpayer's claim for rental deductions for the year ended 30 June 2008 in relation to two properties on the basis that the tenancies were non-commercial arrangements.

Background

The taxpayer owned two residential properties with her two sons as joint tenants. For part of the relevant year, the properties were rented to her ex-husband and one of her sons. The taxpayer then sold her 50% interest in both properties to her sons at different times during the relevant year. The taxpayer lodged a tax return for the 2008 year claiming a 50% share of the rental income and deductions.

The Commissioner conducted an audit of the relevant year and issued an amended assessment excluding gross rent of $6,128 from the taxpayer's assessable income and disallowing $11,769 in interest deductions and $11,345 in other rental deductions. He broadly contended that the tenancies were non-commercial arrangements evidenced by the non-arm's length rate of rent and that the taxpayer was therefore not entitled to claim any deductions.

Decision

The AAT said the taxpayer's factual circumstances were distinguishable from previous cases and that there was no evidence presented at the hearing that the taxpayer was assisting either her ex-husband or her son. In addition, the AAT said the rent charged by the taxpayer did not differ greatly from the median figure presented by the Commissioner. Therefore, it held that the taxpayer's rental arrangements were not non-commercial arrangements. As a consequence, the rental income derived was assessable and the expenses incurred were deductible, the AAT said.

The AAT determined from the evidence presented that the gross rent received by the taxpayer from the two properties for the relevant year was $5,935 (lower than the initial figure of $6,128 disclosed by the taxpayer). While noting that the taxpayer was able to deduct the associated rental expenses, the AAT said that the taxpayer's tax agent only apportioned the expenses on the basis of the ownership interest and not on ownership period as well, which was relevant since the taxpayer sold the properties to her sons during the relevant income year. Therefore, it set aside the amended assessment and remitted the matter back to the Commissioner for reconsideration.

Re Bocaz and FCT [2012] AATA 847, www.austlii.edu.au/au/cases/cth/AATA/2012/847.html