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Edited version of your written advice
Authorisation Number: 1012985415029
Date of advice: 22 March 2016
Ruling
Subject: Assessability of rental income from rental property
Question
Are you required to declare rental income from the rental property?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014.
Year ended 30 June 2015.
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your spouse purchased a property jointly with a relative.
Your relative lived in the property.
The property has been rented for the past two years.
Your relative receives all the rental income.
Your relative pays 100% of the associated expenses with the property.
The property is in the names of yourselves and your relative.
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 where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. Amounts received as rent are assessable income under subsection 6-5 of the ITAA 1997.
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, or relate to the earning of exempt income.
Taxation Ruling TR 93/32 discusses rental properties and the relationship between ownership and apportionment of income and deductions to the owners.
TR 93/32 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 (paragraph 6). It goes on to explain at paragraph 41, that where taxpayers are related, for example, husband and wife, the equitable right is presumed to be exactly the same as the legal title.
A person'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 deed for the property issued under that legislation.
As you, your spouse and your relative are currently the legal owners of the rental property, the income and expenses must be divided and shown by you, your spouse and your relative according to your ownership interest on the title deed.
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