Co-own your investment property? Here’s what you need to know about tax

May 24, 2017 Sam Saggers

The following article has been supplied by the ATO.

Buying an investment property is a financial commitment that many property investors choose to split with another person. But did you know that co-owning your investment property with someone else will impact your tax return each year?

With tax time quickly approaching, there’s no better time to learn the ‘dos’ that come with co-owning an investment property.

Do: know what portion of ownership you have of the property.

Your legal interest in the property determines how you split the income and expenses on your tax return, even if there is an agreement between owners, either oral or in writing, stating otherwise. As joint tenants the split will be an equal 50:50, or if you’re tenants in common you may have different ownership interests. If you want to check what your legal interest is, you can find this information on your title deed.

Do: divide the income according to your ownership interest

Most property owners understand they need to declare all their rental income on their tax return, including things like insurance payouts and bonds they become entitled to keep. However each year the ATO sees some property co-owners declare the incorrect portion of rental income on their tax returns. You need to divide rental income according to the portion of ownership you have. You can’t assign more of the income to one owner just because they are in a lower tax bracket.

Do: claim your correct share of expenses

You can only claim a tax deduction in line with your ownership percentage even if you pay for all the expenses. You can’t assign more expenses to the higher earner; they need to be split according to each owner’s legal interest.

Do: discuss your record keeping system

When you jointly purchase your rental property, it’s a good idea to discuss how accurate record keeping will take place. Will one person be responsible, or will each owner keep track of the income earned and the expenses incurred? Knowing this upfront will ensure all the required documents are kept, and make it easier to have all your records on hand at tax time, whether you use a registered tax agent or lodge yourself.

Max & Sarah’s story:

The ATO recently investigated an expense claim that had not been apportioned correctly. Max and Sarah had joint ownership of a rental property and had correctly declared income in accordance with their ownership interest.

However, they did not declare their expenses in accordance with their ownership interest – – as the higher income earner, Sarah claimed the larger expenses such as interest and land tax and as the lower income earner, Max claimed the smaller expenses.

The ATO adjusted the expenses according to the ownership interest and Sarah had to pay back more than $8,000 in tax.

Interested in finding out more about rental properties and tax? Visit www.ato.gov.au/rental or download our rental properties guide at www.ato.gov.au/rentalpropertyguide

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