Private ruling: Rental property income and expenses
Published: June 2015
Ruling period: Year ending 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Are you assessable on 100% of the rental income and entitled to 100% of the deductions from the relevant financial year for your jointly owned rental property? | A1: No. | Q2: Are you assessable on 100% of the rental income and entitled to 100% of the deductions from the subsequent financial year for your jointly owned rental property? | A2: Yes.

Relevant facts and circumstances: You own a rental property as joint tenants with your ex-spouse. Several court orders have been made in relation to the property expenses and ownership in the Federal Court. In the relevant financial year, the court ordered that you were to pay 100% of the mortgage, council, and water expenses for the property (Orders provided). Since that time you have continued to pay for 100% of all rental property-related expenses for the property, and have also received the rental income from that property. In the subsequent financial year, further property orders were made ("Final orders" document provided). Order 11 stated that you are solely responsible for all expenses for the property. Orders further state that the property is to be transferred into your sole name by a specified date. Your ex-spouse continues to refuse to sign the property over and there is ongoing litigation in regards those orders. Ordinarily, you understand that as a joint tenant, you are entitled to claim 50% of the income and expenses related to the property. However, you are enquiring as to whether there may be a departure from this general rule in your circumstances.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 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. 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 (TR 93/32) explains 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 or beneficial interest is different from the legal title. In certain circumstances, a Family Law Court Order dealing with settlement of jointly owned property may suffice as sufficient evidence to establish that the equitable interest is different from the legal title. Under the Family Law Act 1975 Order dated in the relevant financial year, you were to pay all mortgage repayments, council and water rates on jointly owned properties. Although you were required to pay 100% of the aforementioned expenses, you still only held a 50% share in the legal and equitable interest in the property. The Order did not seek to alter your legal or equitable interest at this time. However, under the Family Law Act 1975 Order dated in the subsequent financial year , the property was to be transferred to you by a specified date. The transfer has not yet occurred. However, as your former partner is to transfer their title and interest in the property to you, this effectively confirms your 100% interest in the property from the date of the Orders in the subsequent financial year. Even though, on the date the Order was made, you and your former partner were still the registered joint owners, for taxation purposes, the consent order is sufficient evidence to show that the income and expenses from the property belong solely to you. In accordance with the second Orders, from the subsequent financial year you are assessable on 100% of the income and entitled to claim 100% of the rental property expenses incurred in relation to the property. The fact that the actual transfers did not occur until a later date does not change this. Before the Orders dated in the subsequent financial year, there is insufficient evidence for tax purposes to establish that your equitable or beneficial interest in the property is 100%.