Edited version of private advice

Authorisation Number: 1051551111015

Date of advice: 26 July 2019

Ruling

Subject: Beneficial ownership of an investment property - court order change to ownership

Question 1

Are you assessable on all of the rental income and entitled to claim all the deductions and refundable tax offset for an investment property prior to the court terms of settlement?

Answer

No

Before the date of the court order, the income, deductions and eligibility to claim the refundable tax offset for the property are shared according to your legal ownership.

Question 2

Are you assessable on all of the rental income and entitled to claim all the deductions and refundable tax offset for an investment property after the court terms of settlement?

Answer

Yes

From the date of the court order naming you as the trustee of the property you are assessable on all of the income and therefore entitled to claim all rental property expenses incurred including the NRAS refundable tax offset. The fact that the legal title have not been transferred into your name does not change this as there is sufficient evidence to establish that the equitable or beneficial interest is different from the legal title.

This ruling applies for the following periods:

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commences on:

1 July 2016

Relevant facts and circumstances

After 20 September 1985 you and your former spouse purchased a rental property.

The legal title shows your former spouse owned most of the property and you own the remaining small percentage.

Due to your divorce, the Family Court certified orders under the Terms of Settlement in naming you as trustee of the property with all responsibility and entitlements afforded to you including the authority the property for sale or private lease.

Your former spouse no longer contributes to the property in any way.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Reasons for Decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that rent is regarded as ordinary assessable 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.

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners discusses the income/loss from a rental property jointly owned by husband and wife. The ruling states that this income and expenses 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. Where taxpayers are related, such as husband and wife, the equitable right is the same as the legal title.

However, under the Family Law Act 1975 Terms of Settlement, you were appointed trustee of the property with complete responsibility and authority.

This effectively confirms you have sole interest in the investment property from the court order date. Even though on the date the order was made, you and your former partner were still the registered joint owners, the consent order is sufficient evidence to show that the income, expenses and the right to claim the refundable tax offset belong solely to you.

However, before the court order date the income and deductions for the property are shared according to your legal ownership of it.