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Edited version of your private ruling
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Ruling
Subject: Rental property income and expenses
Question 1
Are you assessable on 100% of rent on the two rental properties prior to the date the title deeds are changed?
Answer
No.
Question 2
Can you claim a deduction for 100% of expenses on the two rental properties prior to the date the title deeds are changed?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You and your spouse separated during 2010.
You and your spouse reached an agreement that ownership of your properties would pass to you as part of the Family Law Court settlement order.
Later on in 2010, your spouse left you to receive 100% of income and pay 100% of expenses in relation to the properties.
You obtained a Family Court order which provided, among other things, that the title of the properties was to be transferred to you upon completion of the sale of the matrimonial home.
The matrimonial home was sold during 2011.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Co-owners of rental property generally hold the property as joint tenants or tenants in common. The income and loss from a rental property must be shared in the proportion of ownership.
Taxation Ruling TR 93/32 states that the net income or 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.
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 in which the property is situated. The legal owner of the property is recorded on the title deeds for the property issued under that legislation.
While we accept that since 2010, you have been receiving 100% of the income and paying 100% of the expenses of the properties because your spouse left you with the responsibility, this does not mean that the equitable interest in the properties is different from the legal interest.
Therefore, you must include both the rental income received and expenses incurred according to your percentage of ownership as stated in the title deed of the properties up to the time when the title changes into your name only.