| Disclaimer This edited version has been archived due to the length of time since original publication.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 private ruling
Authorisation Number: 1011957033729
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Rental income
Question and answer
Are you required to include in your assessable income 50% of the rental income in relation to an investment property that is to be transferred to your former spouse as a result of a court order where the title of the property is still in both your names?
No
This ruling applies for the following period
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on
1 July 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You and your former spouse own an investment property (property A) in joint names.
The investment property was used as security to purchase a new property (property B).
You and your former spouse divorced and as a result of a court order under the Family Law Act 1975 , the investment property is to be transferred to your former spouse.
You are unable to transfer the title of the investment property to your former spouse at this stage as you are unable to pay off your existing loan that is secured by both the investment property and your new property.
Your former spouse has agreed (in writing) to defer the transfer of the investment property and therefore allow you to continue to use the property as security for the new property.
Your former spouse is receiving 100% of the rental income from the investment property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income includes income according to ordinary concepts, which is called ordinary income. It is included in a taxpayer's assessable income unless it is exempt, or is made non-assessable. Rental income is ordinary income.
Ownership interest in rental property
Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners states that a legal interest in property is achieved by the owner being the registered proprietor of the legal title to the land. Co-owners of a property who are joint tenants of that property will hold an identical legal interest in the property.
According to TR 93/32, the income/loss 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.
You and your former spouse own a rental property as joint tenants, so you each hold an identical 50 percent legal interest. The net income or loss from the rental of the property must be shared accordingly, unless there is sufficient evidence to establish that your equitable interest is different from this legal interest.
In your circumstances, the family court order states you are to transfer the investment property within six months from the date of the court order.
There is sufficient evidence in your case to establish that your equitable interest in the property is different from your legal interest. A court order transferred legal interest to your former spouse. A financial institution has delayed the transfer and your former spouse has agreed (in writing) to this and your former spouse receives 100% of the rental income, you are not required to declare any rental income from the date of the court order.