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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012438059699

Ruling

Subject: Ownership interest in rental property

Question and answer:

Are you entitled to include 100% of the rental income and 100% of the rental property expenses on your income tax return where you are a joint owner of the property?

Yes.

This ruling applies for the following periods

Year ended 30 June 2012

Year ending 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You have a X% legal ownership interest in a rental property and your former spouse has a Y% interest in the property.

Under a court order in 20ZZ your former spouse is to transfer his/her ownership interest to you in exchange for a specified payment from you on or before a specified date.

The court order also specified that you would:

The property transfer has not yet occurred as you are not currently in a position to refinance the loan.

You have paid all the rental property loan repayments and outgoings since the date of the court order and no contribution has been made by your former spouse.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Taxation Ruling TR 93/32 Income tax; rental property; division of net income or loss between co-owners explains that the loss or income from a 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.

A person's legal interest in a property is determined by the legal title to that property under the land legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation.  

Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, regardless of any agreement between the co-owners, either oral or in writing stating otherwise.

Where a co-owner pays for more than his or her share of the expenses, this is considered to be a private arrangement between the co-owners. It does not alter the fact that they are only liable for their share of the expenses according to the legal title of the property.

Where the taxpayers are related the Tax Office will assume that the equitable right is exactly the same as the legal title. Therefore, as you were related to your former spouse, it would be assumed that your legal and equitable interests are in parallel unless you can show that they were different.

In certain circumstances, a court order dealing with settlement of jointly owned property may suffice as sufficient evidence to establish that the equitable interest is different from the legal title.

In your case, you have a court order made in 20ZZ which specifies that your former spouse will transfer his/her ownership interest in a rental property to you in exchange for a specified payment from you on or before a specified date. However, this transfer has not yet occurred. Under the order you have been responsible for the rental property mortgage payments and all outgoings since the date of the order.

Consequently, the court order effectively confirms your equitable interest in the rental property even though, on the date the order was made in 20ZZ, you and your former spouse were the registered owners.

Therefore, you can include the rental income and the rental property expenses on your income tax return from the date of the court order.

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