The 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 2 properties on the basis that the tenancies were non-commercial arrangements.
The taxpayer owned 2 residential properties with her 2 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 Commissioner conducted an audit and issued an amended assessment excluding gross rent from the taxpayer’s assessable income and disallowing interest and other rental deductions. He broadly contended that the tenancies were non-commercial arrangements evidenced by the non-arm’s length rate of rent, therefore, the taxpayer was not entitled to claim any deductions.
The AAT said there was no evidence presented at the hearing that the taxpayer was assisting either her ex-husband or her son. In addition, it said that the rent charged by the taxpayer did not differ greatly from the median figure presented by the Commissioner. Therefore, the AAT held that the taxpayer’s rental arrangements were not non-commercial arrangements. As a consequence, the AAT said the rental income derived was assessable and the expenses incurred were deductible.
While noting that the taxpayer was able to deduct the associated rental expenses, the Tribunal said that some pro-rating of the expenses was incorrectly calculated, hence, it set aside the amended assessment and remitted the matter back to the Commissioner for reconsideration.
(AAT Case [2012] AATA 847, Re Bocaz and FCT, AAT, Ref No 2010/4160, Lazanas SM, 30 November 2012.)
[LTN 232, 29/11]