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Ruling

Subject: Rental property - ownership

Question 1

Should your rental property income and expenses be declared in accordance with the legal title?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You purchased a block of land some years ago. The land remained vacant for many years until you constructed a rental property.

You and your spouse obtained finance in joint names. You have since declared the rental income and expenses as joint tenants in your tax returns as you consider the property to be jointly owned.

You recently discovered that the legal title to the property was registered in your name only.

You do not have any current loans on the property and you have not claimed any deductions for interest in the relevant financial years.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1936 Subsection 6-5(2).

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (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 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 (paragraph 6). It goes on to explain at paragraph 41, that where taxpayers 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 deeds for the property issued under that legislation.

The taxpayer is shown on the title deeds to the rental property as the sole owner. Thus, the loss or income from the rental property must be shown solely by the taxpayer.

Where the title deed indicates sole ownership of a property, the legal owner should declare all of the rental income and claim all of the rental expenses. The fact that another party may have paid the expenses is of no consequences for income tax purposes. The ATO treats the payment of the other party's share of the expenses as no more than a loan from the other party to the taxpayer (Taxation Ruling TR 93/32 paragraph 49).

Therefore, as the title to the property lists you as the sole owner, for income tax purposes you should declare 100% of the rental income, and claim 100% of the rental expense deductions.