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Ruling
Subject: Rental ownership
Question
Should your half share of the net income or loss from your co-owned rental property be included in your tax return?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You and your spouse separated and are currently undergoing divorce and settlement proceedings.
You and your spouse are partners in a partnership.
The partnership jointly owns land and buildings.
You declare 50% of the taxable income from the partnership in your income tax return. However, you don't physically receive the 50% distribution of income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Taxation Ruling TR 93/32 explains that the net 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. An example of where the equitable interest may differ from the legal interest is when an owner is holding their share as trustee for the other owner. A Family Court order dealing with settlement of jointly owned property may also alter this equitable interest.
A person's legal interest in a property is determined by the legal title to that property under the land 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.
Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between the co-owners, either oral or in writing stating otherwise.
Where a co-owner forgoes their share of the rental income and/or pays for all the expenses this is considered to be a private arrangement between the co-owners. It does not alter the fact that they are legally entitled to their share of the income and liable for their share of the expenses.
In your case, the equitable interest in the ownership of the property is not different from the legal title. Therefore, you must declare the income and claim the deductions with respect to the property in proportion with your legal interest in the property. As a co-owner of the rental property, there is nothing in the legislation which allows a choice to allocate income on a basis different to the legal title.