| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012617920837
Ruling
Subject: Rental property
Question
Are the co-owners of an investment property required to apportion the property's net income or losses according to their legal interest in the property?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 March 2014
Relevant facts and circumstances
You have a duplex property that was purchased between multiple people as tenants in common.
You and your spouse borrowed to purchase the property.
Your relative provided cash for a portion of the purchase cost and you gifted your relative an amount to assist them to obtain ownership of the property.
You and your spouse lived on one side while your relative lives in the other unit.
You intend to vacate your unit and rent it out at arm's length.
Your relative will continue to reside in one unit.
The rent of the property and all administration and expenses relating to the renting of the unit will be handled by you.
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 Income tax: rental property - division of net income or loss between co-owners discusses the division of income or losses incurred on a rental property between co-owners. According to TR 93/32, the net income or loss from a rental property must be shared according to the legal interest of the owners, except in very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal interest. Legal interest is determined by the legal title to a property.
Co-owners of rental property are often family members, owning property jointly as joint tenants or tenants in common. Any agreement made by the co-owners, whether orally or in writing, to vary the proportion of net income claimable by each co-owner has no effect for taxation purposes. Such agreements are merely domestic in nature, and cannot override the taxation legislation in relation to the division of income or losses in relation to co-owners of rental properties.
In your case, although your relative lives in one of the units and you intend on renting out the unit you had occupied, it is not considered that the equitable interests in the property are different to the legal interests.
Therefore, the net rental income or loss from the property must be shared in accordance with legal title. Each co-owner must then declare their share in their tax returns.