Private ruling: Legal versus equitable interest
Date of advice: 2 October 2019
Published: January 2020
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you required to declare all income and expenses from a jointly owned rental property from the date of separation as provided on the Family Court Order being Autumn 2017? | A1: No

Relevant facts and circumstances: You and your former spouse owned an investment property located in Australia. You and your former spouse each held a 50% interest in the property. A settlement agreement was issued by the Family Court under an order issued in Winter 2019 and amended by consent in Spring 2019. Under the agreement the investment property that had been owned jointly with your ex-spouse was to be transferred to their name. They became solely responsible for all income and expenses relating to this property from the date of separation. This property was sold with settlement in late 2019. Your former spouse has testified in the Family Court that they claimed and declared all income and expenses for this property for various financial years and this declaration has been included in the relevant Family Court orders.

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

Reasons for decision: Summary: Your assessable income includes ordinary income derived directly or indirectly from all sources during the income year (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)). Ordinary income includes income from property such as rent. You are entitled to a deduction for all losses and outgoings to the extent which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature (section 8-1 of the ITAA 1997). Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners explains the basis upon which the net income or loss from a rental property is to be divided between co-owners, and provides: · because co-owners of a rental property are generally not partners at general law, a partnership agreement, either in oral or in writing, has no effect on the sharing of income/loss from the property, and · the net income or loss 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. An example of where the equitable interest may differ from the legal title is where a party is holding the property in trust for another party. A Family Court order that determines the financial relationship between two parties in divorce proceedings may also provide sufficient evidence to establish that the equitable interest is different from the legal title. In your case, it is considered that the Family Court order has altered the equitable ownership of the property as at the date of the amended Family Court Order. Accordingly, from the date of separation you are not required to declare any rental income or rental expenses in relation to the property.