Edited version of private advice

Authorisation Number: 1051788085879

Date of advice: 10 December 2020

Ruling

Subject: Rental income and deductions

Question 1

Are you entitled to claim 100% of the rental income or losses associated with the Property?

Answer

No

Question 2

Are you entitled to claim 100% of the expenses in relation to the Property?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your ex-partner built a property together.Construction of the property was completed in 20XX.The title of the property (Property) was in both your names as joint tenants.Your relationship broke down before construction of the property was completed.

The Property was rented out during your ownership period and you also resided in the Property.

The cost to build the Property was approximately $XXX, XXX. The Property was sold recently.

A capital loss has resulted from the sale of the Property.

There is a currently a debt associated with the Property.

You will refinance the debt into your own name.

You paid all expenses associated with the Property. Your ex-partner never contributed any money towards the Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

You must claim rental income or losses and deductions in proportion to your legal interest in the Property. As you were a joint tenant holding an interest in the Property, this means that you include a percentage (ownership interest) of the rental income or losses and expenses in your tax returns.

Detailed reasoning

Income or losses 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

Generally, a legal interest in land is achieved by the owner being the registered proprietor of the legal title to the land. Where there is more than one person with a concurrent legal interest in the same land, those persons are co-owners of the land. It is the legal interest in the Property which ultimately determines, among co-owners of property, the division of the net income or loss from the property

We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, for example, husband and wife, that the equitable right is the same as the legal title. Any capital gain or loss should also be apportioned on the same basis as the rental income or loss.

Application to your circumstances

While you and your ex-partner have separated, the legislation outlines that the division of net property income/losses are to be shared based on the legal interest of the owners and not equitable interest. This applies to the expenses incurred in relation to the Property

You are not able to declare 100% of the income and claim 100% of the deductions on the rental property you formerly owned with your ex-partner. You must declare your share of the income and your share of the deductions in your tax returns based on legal ownership.

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