Edited version of private advice

Authorisation Number: 1012640710950

Ruling

Subject: Rental 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 2013

• Year ending 30 June 2014

• Year ending 30 June 2015

• Year ending 30 June 2016

• Year ending 30 June 2017

The scheme commences on:

2007

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

At the beginning of 20XX, your spouse signed a contract to purchase a block of land. The contract for sale only listed your spouse as the buyer because you were not eligible to purchase the block as you were not a permanent resident.

Late 20XX you and your spouse signed a contract to build a house.

The loan for the house was taken out in both of your names.

In 20YY the property became your investment property.

You are financially responsible for the loan repayments and rental costs.

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 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.

A person's legal interest in a property is determined by the legal title to that property under the land legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation.  

Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between the co-owners, either oral or in writing stating otherwise.

Where a co-owner forgoes their share of the rental income and/or pays for all the expenses this is considered to be a private arrangement between the co-owners. It does not alter the fact that they are legally entitled to their share of the income and liable for their share of the expenses.

In your case, the equitable interest in the ownership of the property is not different from the legal title. However, the land is owned by your spouse. Therefore, you must declare the income and claim the deductions with respect to the property in proportion with your legal interest in the property. As a co-owner of the rental property, there is nothing in the legislation which allows a choice to allocate income on a basis different to the legal title.