Private ruling: rental properties
Published: June 2015
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you required to declare your share of the rental income from your jointly owned rental properties after separating from your ex-partner? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Rent is regarded as ordinary assessable income. 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. 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. TR 93/32 states at paragraph 11 that it is the legal interest which ultimately determines the division of the net income or loss from the property. That is co-owners must divide the income and expenses for the rental property in line with their legal interest in the property according to the title deed. In your case, the Family Court Order acknowledged that the properties are owned jointly and that any proceeds from the sale of the properties are to be deposited into a joint account. Taking into consideration the income, property and financial resources of you and your ex-partner, the Court found that some matters favoured your ex-partner and other matters favoured you and it was considered that the property should be divided equally. There is insufficient evidence for tax purposes to establish that your equitable or beneficial interest in the properties is not 50%. It is acknowledged that after separation, your former partner diverted the rental income into their personal account; however this does not change your legal or beneficial interest in the property. Such an arrangement is private in nature and has no effect for income tax purposes. That is, the profits and/or losses from the rental property are to be shared according to your legal interests in the property. Therefore, as joint owner in the properties you are required to declare 50% of the rental income derived from the properties. It follows that you are also entitled to 50% of the rental property expenses incurred in relation to the property.

Relevant facts: You and your previous partner jointly owned some rental properties. The properties were owned in equal shares. | After separation, all of the rental income from the properties were diverted from the joint account into your ex-partner's personal account which you could not access. | As per the Family Court Order, from XX/XX/ 2014, all rental income from the rental properties were to be paid into a joint bank account. | As outlined in the Family Court Order, during the relationship there was a sustained pattern of intermingling of funds. There was an economic partnership of equals with the relevant financial transactions occurring as a result of the joint decisions. Each party continued to make contributions, post-separation, in a variety of material ways. | All in all, the court was satisfied that the respective contributions of the parties should be considered to carry equal value and property should be divided equally.