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Edited version of your private ruling
Authorisation Number: 1012466866473
Ruling
Subject: Rental ownership
Question
Are you entitled to claim 100% of the income and expenses related to your rental property from the date of the court order?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You and your partner purchased a rental property together several years ago.
You then separated, with your former partner no longer continuing to contribute to the costs incurred in maintaining the rental property.
You lodged and had accepted via the Family Court of Australia a sealed consent order.
The Family Court order provided that:
· your former partner will transfer to you their right title and interest in the property
· you will refinance and indemnify your former partner in relation to the mortgage encumbering the property
· you will be liable for and indemnify your former partner against all or any liability for mortgages and/or loans secured over the property including all rates, taxes, taxation liabilities and outgoings arising in respect of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts, which is called ordinary income.
Section 8-1 of the 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, or relate to the earning of exempt income or a provision of the taxation legislation excludes it.
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.
You provided a copy of the terms of settlement of an Order under the Family Law Act 1975 which sets out how the joint assets of you and your former partner were divided.
The Family Court orders under the Family Law Act 1975 effectively confirms your 100% equitable interest in the investment property even though, on the date the Family Court orders were made, you and your former partner were joint owners of the property.
Therefore, from the date you signed the Family Court orders, the property is considered to be yours and, if the property is rented or available for rent, you are entitled to claim the income and relevant expenses in relation to the investment property.