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Ruling
Subject: Legal ownership
Questions and answers:
Are you assessable on 100% of the income from a jointly owned investment property?
No.
Are you entitled to a deduction for 100% of the expenses incurred in maintaining a jointly owned investment property?
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
You entered into a contract to purchase a residential investment property.
The purchase of the property was conditional on you obtaining finance approval which you obtained.
Both the contract to purchase the investment property and the loan are solely in your name.
After a period you received a council rates notice addressed to both you and your spouse.
After research you discovered that the title deed of the property listed both you and your spouse as legal owners and joint tenants.
Relevant legislative provisions
Income Tax Assessment Act 1997, Section 6-5
Income Tax Assessment Act 1997, Section 8-1
Income Tax Assessment Act 1997, Section 118-130
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that for an Australian resident, assessable income includes ordinary income derived directly or indirectly from all sources whether in or out of Australia. Rental income is generally assessable as ordinary income.
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.
Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners, provides the Commissioners view on the division of net income or loss between co-owners of a rental property.
Taxation Ruling TR 93/32 explains that the loss or income 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. It goes on to explain that where the owners are related, for example, husband and wife, the equitable right is presumed to be exactly the same as 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 deed for the property issued under that legislation.
While it is acknowledged that from the information that you have provided you intended to purchase the investment property solely under your name, the title deed lists both you and your spouse as joint tenants. As you have not provided any further information that would establish that the equitable interest differs from the legal title any income or deductions must be shared according to the legal interest entailed on the title deed.
Accordingly, you are only assessable on 50% of the income from your investment property and are entitled to only 50% of any deductions that result from the ownership of the investment property.
TR 93/32 provides the following example:
Example 5
48. Mr and Mrs Z rent out a house which they own as joint tenants. The rent is paid into a joint account from which expenses of the property are paid. The expenses of the property exceed the rental income from it each year. Mr Z claims that as he is the sole income earner and had in effect paid all the expenses, he is entitled to claim 100% of the loss.
49. Owning and renting out the one property does not amount to carrying on a business. Mr and Mrs Z are not partners at general law although their relationship is treated as a partnership for income tax purposes. Net profits and losses from the property should be shared in the same proportion as their ownership interests, i.e., 50:50. The fact that Mr Z has paid all the expenses on the property is of no consequence for income tax purposes. We would simply treat the payment of Mrs Z's share of the expenses by Mr Z as no more than a loan by Mr Z to Mrs Z.