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Ruling
Subject: rental income
Question
Is the rental income from a property where you do not hold a legal or equitable interest assessable income to you?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You are an Australian resident for tax purposes.
Your relation has started to transfer an overseas property to you. The documents have been lodged with the authorities and they have gone through the initial stage of registering the property in your name, however, the process has not been fully completed. The property remains in your relation's name.
Your relation lives in the property and rents out a section of the property.
The property remains in their control. The expenses incurred in relation to the property, such as land tax, have been incurred by your relation and not you.
There is no agreement which gives you an equitable interest in the property or the rental income.
Any rent income has been received by your relation.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Rent is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997.
Taxation Ruling TR 93/32 Income tax: rental property - division of net income or losses between co-owners refers to the division of the net income or loss between joint owners of a rental property. Although you are not a joint owner in the property, the principles in the ruling are relevant in your circumstances.
TR 93/32 states that 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.
In your case, your relation remains the legal owner of the property until the transfer has been completed. There is no other agreement that gives you an equitable interest in the property or rental income.
Therefore, as you are not the legal or equitable owner of the property, any rental income derived from the property is not assessable income for you.