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Edited version of private ruling
Authorisation Number: 1011736667685
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Ruling
Subject: Rental property income and expenses
Question
Can Taxpayer A and Taxpayer B each declare the half of the income and claim half of the expenses in relation to a rental property held by their family trust?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2007
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ending 30 June 2011
The scheme commenced on
1 July 2006
Relevant facts and circumstances
Taxpayer A and Taxpayer B entered into a contract for the purchase of a property to be used as a rental property.
On the advice of their accountant, Taxpayer A and Taxpayer B had a replacement purchase contract drawn up to show they were holding the property as trustees for Trust C.
The property's certificate of title shows the registered proprietors to be Taxpayer A and Taxpayer B as joint tenants. The relevant land titles office cannot enter trusts on a certificate of title.
Trust C has not registered a lien against the property with the relevant titles office.
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) states that an Australian resident taxpayer is liable to pay tax on income derived from all sources whether in or out of Australia, during the income year.
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 or a provision of the taxation legislation excludes it.
In general, a landlord is assessable on rental income received under section 6-5 of the ITAA 1997 and may claim deductions for losses and outgoings incurred in gaining that income.
Taxation Ruling TR 93/32 states, in paragraph 6, that the net income/loss from a rental property must be shared according to the legal interest of the owners, except in very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from 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 the property is situated. The legal owner of the property is recorded on the title deeds for the property issued under that legislation.
In this situation, Trust C is the owner of the rental property and Taxpayer A and Taxpayer B are trustees of Trust C. Whilst Trust C's name does not appear on the property's certificate of title, Trust C's ownership is evidenced by the property's purchase contract.
As Trust C is the owner of the property, all of the rental income and expenses are to be shown in its income tax returns.
Taxpayer A and Taxpayer B are not able to declare any income or claim any expenses associated with the rental property.