Edited version of private advice

Authorisation Number: 1051601775283

Date of advice: 1 November 2019

Ruling

Subject: Rental income

Question

Are you required to declare any rental income and/or expenses after the Family Court Order?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commenced on

1 July 2017

Relevant facts

You and your former spouse jointly purchased a property. You both resided at this property. (Property one)

You both acquired the neighbouring property. (Property two)

Property two contained two dwellings with one used to produce rental income.

Prior to settlement of property two you both separated.

You did not ever reside in property two and after separation you moved in with your parents.

You and your former spouse agreed to a number of property orders in relation to your assets.

The Family Court ordered that property one to be sold. Settlement took place on 20xx. The order also made reference to Property two including that your former spouse was responsible for the expenses.

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.

In your case, following the Family Law Act 1975 Consent Order, Property one is to be sold and until such time as the transfer of Property two is completed, your former spouse is responsible for all the expenses in relation to it.

That means that the Consent Order created a trust in favour of your former spouse over the legal interest you held in Property two. Therefore, any of the income and expenses from the property no longer belongs to you.

Before the court order, there is no evidence for tax purposes to establish that your equitable or beneficial interest in the property is different to your legal interest.

However, from the date of the order you are not required to declare any rental income or rental expenses in relation to the property.

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