Private ruling: Property ownership interest
Published: November 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Questions and answers | 1. Does the Commissioner accept that you and your spouse had the full ownership interest in dwelling A? | Yes. | 2. Does the Commissioner accept that you and your spouse do not have an ownership interest in dwelling B? | Yes.

Relevant facts and circumstances: You acquired a property with your spouse and another couple. The property contained a derelict dwelling at the front and room to subdivide and construct another dwelling at the rear. The initial agreement was that one of the other parties would pay a sum of money towards the purchase of the property in exchange for you constructing a dwelling for the other couple at the rear of the property. At the time the property was acquired, it was the intention of all parties that: • you and your spouse would take the front dwelling which you would renovate and use as your main residence; • the dwelling to be constructed at the rear of the property would be the main residence of the other couple; • following completion of the rear dwelling, the property would be subdivided so that the front and rear dwellings would be on separate titles under the separate ownership of the respective couples; and • the future subdivision and ownership of the front and rear portions of the property were to be recorded on the title as allowed under the property law of your state. Despite your intentions, the transfer of title was inadvertently registered in all four names without any mention of the future subdivision. The marriage of the other couple subsequently ended. One of the affected parties relinquished their interest in the property, leaving three registered owners on the title; you, your spouse and the other party. Again, the proposed subdivision was not recorded on the title. You, your spouse and the other party subsequently made a written agreement which included a reference to the original agreement being made. Amongst other things, the agreement also stated that the property would be subdivided and the ownership of the rear block would be signed over to the other party. Construction of the rear dwelling was subsequently completed and you, your spouse and the other party were ready to finalise the subdivision by registering the front portion to you and your spouse and the rear portion to the other party. You were financially unable to complete the subdivision in separate names due to the amount of stamp duty involved so two new titles were created with the existing three owners on each title. The front dwelling was occupied by you and your spouse and was known as dwelling A with the rear dwelling being known as dwelling B. You and your spouse and the other party remained living in your respective dwellings until you sold dwelling A and retained all proceeds. The other party commenced renting out dwelling B and has been collecting all rent monies and incurring all expenses.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1

Reasons for decision: Summary: You acquired a property under contract with three others and the title was registered in all four names. Although the property title legislation in your state of residence allowed you to record the future subdivision of the property on the title at the time of registration, this was not completed. Nor was it completed after the other couple separated. Further, on the actual subdivision, separate legal ownership of the respective lots was not completed even though that was the desired outcome of the parties involved. You and your spouse occupied dwelling A as your main residence until it was sold. The other party occupied dwelling B as their main residence until it was rented out. Because of the above, you argue that you and your spouse should be entitled to the entire ownership interest in the front block with the one-third legal ownership interest of the other party being ignored. In turn, the other party should be entitled to the entire ownership interest in the rear block with the legal ownership interest of you and your spouse being ignored. Although you did not register your respective interests on the original title or subdivided titles, you have provided a copy of a written agreement which supports the stated intention of the parties at the time the property was originally acquired. Further, it would be generally expected that a written agreement of this type would have held significant weight in the courts should there have been a dispute between the respective parties. Based on the information and evidence you have provided, the Commissioner accepts that you and your spouse had the full ownership interest in dwelling A and no ownership interest in dwelling B.