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Edited version of your written advice
Authorisation Number: 1012795935478
Ruling
Subject: Rental property
Question 1
Does 100% of the rental income form part of your assessable income?
Answer
No.
Question 2
Does 50% of the rental income form part of your assessable income?
Answer
Yes.
Question 3
Are you entitled to claim 50% of allowable expenses in relation to your rental property?
Answer
Yes.
Question 4
Will a capital gains tax event happen when the title deed for your rental property is corrected to show you and your spouse as joint owners?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on
1 July 20XX
Relevant facts
The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• the application for private ruling, and
• additional information received including correspondence with your property conveyancer.
You and your spouse purchased a rental property.
You used the services of a property conveyancer.
It was agreed that you would purchase the property with a 50/50 ownership interest. Your intention was always to own the property jointly.
You were both requested to sign the transfer documents in relation to the purchase of the property.
Documents in relation to the purchase and settlement of the property are addressed to both you and your spouse.
The title deed shows you having a 100% ownership in the property.
The rental income from the property is deposited into a joint bank account.
The property expenses are paid from a joint bank account.
The loan for the property is in joint names.
You and your spouse own other investment properties in joint names.
When refinancing your loans, you became aware that the title for your investment property is actually in your name solely.
Not aware of the error you prepared your tax returns declaring 50% of the rental income and declaring 50% of the rental expenses.
The title deed will be corrected to show you as a joint owner with your spouse.
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 losses between co-owners refers to the division of the net income or loss between joint owners of a rental property. The ruling states that the income/loss 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 or beneficial interest is different from the legal title.
You have stated that your interests in the property were always agreed to be 50/50. Your intentions are evidenced by the fact that you were both requested to sign the relevant property documents and all finances in relation to the property are through joint accounts. All correspondence in relation to the property is in both your names.
Although the matter is not free from doubt, it is accepted in all the circumstances of your case that your equitable interest in the property has always been divided 50/50, despite the current legal interest showing you as the sole owner.
A capital gain or capital loss may arise if there is a change in the beneficial ownership of an asset.
As we have accepted that your beneficial interest in the property is 50/50, a change in the legal title to reflect that entitlement will not represent a change in beneficial interest. Consequently there will be no capital gains tax consequences arising from the change in legal title.
Based on your specific circumstances, it is accepted that you are not entitled to 100% of the rental income or 100% of the rental expenses. Your assessable income should include 50% of the rental income and 50% of the allowable rental deductions.