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Edited version of private ruling

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Ruling

Subject: Rental Property-Legal title/ownership-income & expenses

In case of a divorce, are the rents received and expenses paid in relation to a rental property owned by a partnership assessable/deductible to the partnership until:

Rents received are assessable and expenses incurred deductible to the partnership until the title is transferred and legal ownership changes .

This ruling applies for the following period:

1 July 2009 to 30 June 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

A Partnership owns a rental property. The partners, who are husband and wife, separated and a court order dated determined that the property be transferred to the husband. The transfer had not occurred by the end of the financial year and the legal ownership of the property is still shown as that of the Partnership

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-1.

Income Tax Assessment Act 1997 Section 8-5.

Reasons for decision

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) provides guidance on the nexus between legal interest in & title to property and assessable rental income.

TR 93/32 explains that generally rental income and expenditure in respect of rental property are assessable /deductible in accordance with the legal interest in the property, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. An entity's legal interest in a property is determined by the legal title to that property under the land law legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deeds for the property issued under that legislation. The legal owner is the registered proprietor of the legal title to the land.

It is the Commissioner's view that there are extremely limited circumstances where the legal and equitable interests are not the same. In these limited circumstances there must be sufficient evidence to establish that the equitable interest is different from the legal title.

As no evidence has been provided to establish the equitable interest in the property is different from the legal title, the equitable interest is taken to be the same as the legal title to the property. Accordingly, the amount of net rental income and deductible expenses are to be returned in accordance with the ownership interest in the property as registered on the title deeds.

In effect, TR 93/32 states that it is the legal interest in/title to the property which ultimately determines the entity that will be liable to income tax on the rental income.

The rental income and deductible rental expenses must be included in the Partnership return until the transfer of the title deed to the husband (change in legal ownership) as it is the partnership that has legal ownership/interest in and title to the property as shown on the title deed until transfer of title deed to the husband.

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