1012741076140 | Legal database

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Edited version of your written advice

Authorisation Number: 1012741076140

Ruling

Subject: Rental property

Question 1

Are you assessable on 100% of the rental income and entitled to 100% of the deductions from the date of the consent order?

Answer

Yes.

Question 2

Are you assessable on 100% of the rental income and entitled to 100% of the deductions before the date of the consent order?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

You and your previous partner purchased a rental property as co-owners.

You later split up with your partner who agreed to transfer the property to you. Your previous partner stopped paying any contributions to the property and you paid all expenses and costs for the property.

Later, the Family Court ordered the transfer of the property to you.

Legal title was transferred to you shortly afterwards.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 8-1.

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. Rent is regarded as ordinary assessable income.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners discusses the income/loss from a rental property jointly owned by husband and wife. The ruling states that this income and expenses 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 or beneficial interest is different from the legal title. Where taxpayers are related, such as husband and wife, the equitable right is the same as the legal title.

TR 93/32 states at paragraph 11 that it is the legal interest which ultimately determines the division of the net income or loss from the property. That is co-owners must divide the income and expenses for the rental property in line with their legal interest in the property according to the title deed. If they are joint tenants, they each hold an equal interest in the property.

In your case, following separation, you have paid for all expenses in relation to the rental property. However such an arrangement is private in nature and has no effect for income tax purposes. That is, the profits and/or losses from the rental property is to be shared according to your legal interests in the property.

However, under the Family Law Act 1975 Consent Order, the property is to be transferred to you. As your former partner is to transfer all their title and interest in the property to you, this effectively confirms your 100% interest in the investment property from the date of the consent order. Even though, on the date the Order was made, you and your former partner were still the registered co-owners, for taxation purposes, the consent order is sufficient evidence to show that the income and expenses from the property belong solely to you.

Before the consent order, there is insufficient evidence for tax purposes to establish that your equitable or beneficial interest in the properties is 100%. It is acknowledged that your former partner has not contributed towards the property expenses since the separation, however this does not change your legal or beneficial interest in the property.

Therefore, from the date of the consent order you are assessable on 100% of the income and entitled to claim 100% of the rental property expenses incurred in relation to the property. The fact that the actual transfers did not occur until a later date does not change this.

However, before the consent order, as the property was owned as tenants in common, the income and deductions for the property are shared according to your legal ownership.

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