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Ruling
Subject: Division of net income or loss between co-owners of a rental property
Question 1
Are you entitled to claim 100% of the net loss or gain from your jointly owned rental property prior to the final order being made by the Federal Magistrates Court of Australia?
Answer
No.
Question 2
Are you entitled to claim 100% of the net loss or gain from your jointly owned rental property from the date of the final order made by the Federal Magistrates Court of Australia?
Answer
Yes.
This ruling applies for the following period
1 July 2010 to 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You owned a rental property jointly with your former spouse.
You paid all the expenses in relation to this property during the income year. Your former spouse made no contributions towards any of these expenses.
The Federal Magistrates Court of Australia ordered that your former spouse transfer their title and interest in the property to you. The court order provides that pending the transfer of the property, your former spouse holds the property in trust for you.
Title in the property was transferred to you soon after the court order.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Your co-ownership of the rental property with your former spouse is a partnership for income tax purposes but is not a partnership at general law. The income or loss from the property is derived from co-ownership of the property and not from the distribution of partnership profits or losses. Because you are not partners at law, any agreement to share the expenses in proportions different to your respective ownership shares is a private arrangement. As such, the fact that you have paid all of the expenses is of no consequence for income tax purposes.
The loss or income from the rental property must be shared according to your legal interest except where there is sufficient evidence to establish that your equitable interest is different from the legal title.
In your case, the final court order gives you a 100% equitable interest in the property, even though your legal interest remains at 50%, from the date of the court order until the property was transferred to you.
As such, from the date of the final court order you are entitled to claim 100% of the net loss or gain from the property. The net loss or gain from the property should be shared according to the legal title, that is, 50/50, prior to this date.