• Partners at general law

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Where you have a partnership at general law that is carrying on a rental property business, you should divide the net rental income or loss in line with the terms of the partnership agreement. This is so whether or not the legal interests in the rental properties are different to the partners' entitlements to profits and losses under the partnership agreement.

    Example

    Partners at general law

    The Hitchmans' neighbours, the D'Souzas, own a number of rental properties, either as joint tenants or equal tenants in common. They own 8 houses and 3 apartment blocks-each block comprising 6 residential units-a total of 26 properties.

    The D'Souzas actively manage all of the properties. They devote a significant amount of time-an average of 25 hours per week each-to these activities. They interview prospective tenants, organise for repairs and maintenance to be done, have regular property inspections, and personally attend to minor repairs, financial planning and decision making. Apart from income Mr D'Souza earns from shares, they have no other sources of income.

    The D'Souzas are carrying on a rental property business. This is demonstrated by:

    • the significant size and scale of the rental property activities
    • the number of hours the D'Souzas spend on the activities
    • the D'Souzas' extensive personal involvement in the activities, and
    • the business-like manner in which the activities are planned, organised and carried on.
     

    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 per cent share of the partnership profits or losses and Mr D'Souza is entitled to a 25 per cent share of the partnership profits or 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 per cent and 25 per cent, even though the legal interests in the rental properties are held equally-that is, 50 per cent each.

    For more information about dividing net rental income or losses between co-owners, see Taxation Ruling TR 93/32-Income tax: rental property-division of net income or loss between co-owners.

    For more information about whether a business is being carried on, whether it is being carried on in partnership, and the distribution of partnership profits and losses, see:

    Paragraph 13 of TR 97/11 lists 8 indicators to determine whether a business is being carried on. Although this ruling refers to the business of primary production, these indicators apply equally to activities of a non-primary production nature.

    If you are unsure of whether:

    • your rental property activities amount to a partnership at general law
    • you are carrying on a rental property business or
    • you are in both categories

    contact your professional adviser or the ATO.

    Last modified: 18 Jul 2008QC 16578