Edited version of private advice

Authorisation Number: 1052396330633

Date of advice: 15 May 2025

Ruling

Subject: Rental income and deductions

Question

Are you required to declare rental income and claim rental deductions based on your ownership interest in the rental property?

Answer

Yes.

This ruling applies for the following period:

Year ending XX June 20XX

The scheme commenced on:

01 July 20XX

Relevant facts and circumstances

You have an ownership interest in a rental property as tenants in common.

The title deed shows multiple individuals with different ownership interests.

You and your ex-spouse have been declaring the combined ownership interest in the rental property when declaring the income and claiming the deductions.

You were under the impression prior to obtaining a copy of the title deed that you and your ex-spouse had an equal ownership interest in the property.

You wish to correct the error in your tax returns and reflect your ownership in relation to the rental income and rental deductions.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Division of rental income between co-owners of a rental property

Section 6-5 of the Income Tax Assessment Act 1997ITAA 1997) provides that your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners outlines that the 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.

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 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.

TR 93/32 provides the following example:

Person A and Person B purchase a rental property. Person A contributed 80% of the funds used to purchase the property while Person B contributed 20%. They register their purchase as joint tenants. They also sign a written agreement to share any profits or losses from the property in accordance with their capital contributions but share interests in the property equally.

Owning and renting out the one property does not amount to carrying on a business. Person A and Person B are not partners at general law although their relationship is treated as a partnership for income tax purposes. Net profits and losses from the property should be shared in the same proportion as their legal ownership interests, i.e., 50:50. Their agreement to share the profits and losses in proportion to their capital contributions is a private arrangement which has no effect for income tax purposes.

You are required to declare the rental income and claim rental deductions based on your ownership interest in the property.