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Ruling
Subject: Rental property ownership
Question
Can you declare all of the rental income or loss from renting out two bedrooms of a property which you are a co-owner of?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You are a co-owner of a property as tenants in common with two others.
You own 50% of the property with the other 50% jointly owned by the other two co-owners.
The property is a four bedroom house, and the other two co-owners occupy two bedrooms.
You wish to consider your 50% of the home as an investment and earn rental income from it by renting out the other two bedrooms.
Your principal place of residence is another house.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Summary
As tenants in common, the three co-owners each hold an interest in the property in the same proportions as shown on the property title deed, and will therefore need to include that proportion of any net rental income or loss in their tax returns.
Detailed reasoning
Taxation Ruling TR 93/32 discusses the division of income or losses from a rental property between co-owners. According to TR 93/32, 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 interest. Legal interest is determined by the legal title to a property.
As tenants in common, you hold a 50% interest in the property and the other two co-owners each hold a 25% interest in the property. Although the other two co-owners occupy two bedrooms and you do not live at the property, it is not considered that the equitable interests in the property are different to the legal interests.
Therefore, the net rental income or loss from the property must be divided between you and the other two co-owners in the same proportion as your ownership interests as shown on the property title deed. Each co-owner must then declare their share in their tax returns.