Tax on IP's

From: Ken .

I have 4 property's, 2 in my name and 2 in my wife's name. All the loans are in both our names.
My question is how is the income (rent) and deductions dispersed between us?
Is it based on the shared borrowings, eg half the income and deductions from each property is allocated to us evenly.
Or is it based on ownership, eg on property in my name, I receive the income and all the deductions
Or is it some combination of both?

I have the problem that most of us face, finding a good accountant that knows the ins and outs of property investment.
Before I continue my search, I would appreciate any feedback on this, thanks in advance.


(if anyone has found one of these rare species with a habitat in the n/w area of Sydney, I would be very glad to learn of it's hiding place)
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Reply: 1
From: Rolf Latham

Hi Ken

Im' not an accountant. Clients experience suggests that it is the title of the Ips that determines the split of the various bits and pieces. The loan "ownership" usually determines little in regard of tax issues.


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Reply: 1.1
From: Dale Gatherum-Goss


Yes, it is the title that determines who may claim the expenses and thus if your properties are owned by one individual, then, the interest and other costs will be attributed to the individual who is shown on the title.

I hope that this helps.


(ps, Ken, they are extinct and no longer exist!!)
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Reply: 1.1.1
From: Rick Gibson


What city are you in?
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Reply: 1.1.2
From: Duncan M

>Yes, it is the title that
>determines who may claim the
>expenses and thus if your
>properties are owned by one
>individual, then, the interest
>and other costs will be
>attributed to the individual
>who is shown on the title.

Dale, what are you thoughts on the D'Souza's described on Page 2 of the 2001 ATO Rental Property Guide.

If the holding of the rental properties satisfies the test of being run as a business and a formal partnership agreement has been struck, then the Nett Income or Loss must be apportioned in accordance with that agreement and not the legal ownership of the property.

Further, for Family Tax calculations, the loss from a partnership most definitely comes off your income to arrive at your Adjusted Assessable Income.

In reading this guide, one should probably also read this ruling for a more comprehensive treatment of the subject:


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From: Paul Zagoridis

Many investors start out poorly structured with property owned personally with joint borrowings.

One cheaper way of rearranging the cashflow is to have an entity lease your entire portfolio (at market rates) and then sublet individual properties.

Effectively you are selling the management rights to the portfolio. So Ken could use that as an opportunity to fine tune the % split with his wife (by having the entity pay some money up front for the rights).

This doesn't fix inflexible deductions for interest or depreciation, but it does allow you to allocate income and expenses more flexibly.

One problem is if you do not yet have a good accountant it is not simple to set up.

Paul Zag
Oz Film Biz is at
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Tax on IP%27s

Reply: 2
From: Sam Coster

Sorry to disagree with some of our learned
experts, but my wife and I own properties
with both our names on the title.
In both cases the taxable income and expenses
are allocated according to a legal document
drawn up when we purchased the IP, in which
we have designated who will claim the income
and expenditure.
In our case my wife claims on two properties
and I claim on two.
You will have to forward project both incomes
to decide where the advantage lies because
once you have made the decision the ATO do
not look kindly on changing your decision.


Enjoy the journey, its half the fun.
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Tax on IP%27s

Reply: 2.1
From: Ken .

Thanks for the response guys.
I am quite happy having the split along ownership this stage, but as Paul mentioned, the time has come to restructure for future needs.
But to do that I need to find A GOOD PROPERTY ACCOUNTANT (I hope Dale is wrong, with his opinion that they are extinct, there just might not be any left in the wild, but could there be some in captivity?)
Rick, I live in Sydney

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Reply: 3
From: Sam Coster

Hi Ken
For a good Accountant, give Garry Lissa a
ring 9211 0113. Tell him Sam Coster
gave you his name

Enjoy the journey, its half the fun.
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From: Dale Gatherum-Goss


I thought that the tax ruling was quite specific and I quote:

3. Co-ownership of rental property is a partnership for income tax purposes but is not a partnership at general law unless the ownership amounts to the carrying on of a business.
4. Where co-ownership is a partnership for income tax purposes only, the income/loss from the rental property is derived from co-ownership of the property and not from the distribution of partnership profits/losses.

5. Because co-owners of rental property are generally not partners at general law, a partnership agreement, either oral or in writing, has no effect on the sharing of income/loss from the property.

6. Accordingly, the income/loss from the 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.

I hope that this helps

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From: Duncan M

The Rental Property guide says:

"Mr and Mrs D'Souza have a written partnership agreement in which they agreed to carry on a rental property business. They have agreed that Mrs D'Souza is entitled to a 75% share of the partnership profits or losses and Mr d'Souza is entitled to a 25% share of the parternship profit of losses.

The D'Souzas are partners at general law. This means that the net profit or loss generated from their rental business is divided between them in proportions of 75% and 25% even though their legal interests in the rental properties are held equally - that is 50% each."

>6. Accordingly, the
>income/loss from the 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.

So the key is the suffficient evidence required to demonstrate that a partnership at general law exists. No doubt, the 4 tests introduced to limit non-commercial losses would be at least one litmus test applied to the partnership, perhaps some others might be existence of bank accounts, books, ABN etc..?

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