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Edited version of your private ruling
Authorisation Number: 1012485775504
Ruling
Subject: Investment property income
Question
Does the income from your investment property have to be shared between the co-owners in accordance with the percentage of their ownership according to the title deed?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You are the co-owner of a rental property with your ex-spouse.
Your ex-spouse pays for the investment property mortgages and the investment income goes into their bank account.
You have no control over the investment income.
You agreed with your spouse at separation that you will live in the former family home and they will occupy the rental property once the current rental lease expires.
You are compelled to keep the investment property in both names as you do not have sufficient funding to transfer the title.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1 and
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts, which is called ordinary income.
Taxation Ruling TR 93/32 Income tax: rental property - division of net income or losses between co-owners refers to the division of the net income or loss between joint owners of a rental property. The ruling examines the taxation position of co-owners whose activities do not amount to the carrying on of a business. Persons who own one rental property would not normally be considered to be carrying on a rental property business.
Paragraphs 38 to 41 of TR 93/32 address the legal and equitable interests issue confirming at paragraph 41 that there are extremely limited circumstances where the Tax Office will accept that the equitable interest is different from the legal title. Where the taxpayers are related the Tax Office will assume that the equitable right is exactly the same as the legal title. As you were related to your ex-partner, it is assumed that your legal and equitable interests are in parallel unless you can show that they were different.
The fact that you and your ex-partner have an agreement between you does not alter the legal and equitable interests in the property. As you have not provided any evidence that the legal and equitable interests are different at law, you are required to report the income in the same proportion as that shown on the property title deed. You are also entitled to claim your proportion of the rental property expenses.
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