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Edited version of your private ruling
Authorisation Number: 1012339138019
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Ruling
Subject: Rental property
Question 1
Is the rental income from the property not legally owned by you assessable income?
Answer
No.
Question 2
Are you entitled to any deductions for expenses in relation to the property not legally owned by you?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
Your relation purchased a property a few years ago.
You lived in the property for a few years.
The property was rented for a period.
Your relation is currently in the process of changing the title of ownership in the property from their name to your name.
The property is in your relation's will and is to be given to you upon their death.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Rent is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997.
Taxation Ruling TR 93/32 Income tax: rental property - division of net income or losses between co-owners refers to the division of the net income or loss between joint owners of a rental property. Although you are not a joint owner in the property, the principles in the ruling are relevant in your circumstances.
TR 93/32 states that the income/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.
In your case, your relation remains the legal owner of the property until the transfer has been completed. There is no other agreement that gives you an equitable interest in the property or rental income. Although you will be left the property upon your relation's death, this does not give you a legal or equitable interest in the property now.
Therefore, as you are not the legal or equitable owner of the property, any rental income derived from the property is not assessable income for you. Also any expenses in relation to the property are not deductible to you.