| Disclaimer This edited version has been archived due to the length of time since original publication.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. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012818612314
Ruling
Subject: rental properties
Question
Are you required to declare your share of the rental income from your jointly owned rental properties after separating from your ex-partner?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2011
Relevant facts
You and your previous partner jointly owned some rental properties. The properties were owned in equal shares.
After separation, all of the rental income from the properties were diverted from the joint account into your ex-partner's personal account which you could not access.
As per the Family Court Order, from XX/XX/ 2014, all rental income from the rental properties were to be paid into a joint bank account.
As outlined in the Family Court Order, during the relationship there was a sustained pattern of intermingling of funds. There was an economic partnership of equals with the relevant financial transactions occurring as a result of the joint decisions. Each party continued to make contributions, post-separation, in a variety of material ways.
All in all, the court was satisfied that the respective contributions of the parties should be considered to carry equal value and property should be divided equally.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Rent is regarded as ordinary assessable income.
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. 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.
In your case, the Family Court Order acknowledged that the properties are owned jointly and that any proceeds from the sale of the properties are to be deposited into a joint account. Taking into consideration the income, property and financial resources of you and your ex-partner, the Court found that some matters favoured your ex-partner and other matters favoured you and it was considered that the property should be divided equally.
There is insufficient evidence for tax purposes to establish that your equitable or beneficial interest in the properties is not 50%. It is acknowledged that after separation, your former partner diverted the rental income into their personal account; however this does not change your legal or beneficial interest in the property. 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 are to be shared according to your legal interests in the property.
Therefore, as joint owner in the properties you are required to declare 50% of the rental income derived from the properties. It follows that you are also entitled to 50% of the rental property expenses incurred in relation to the property.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
