Private ruling: Rental ownership
Published: December 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to claim 50% of the deductions on a rental property before you held a legal interest? | A1: No. | Q2: Are you entitled to claim 50% of the deductions on a rental property after 50% of legal title was transferred to you? | A2: Yes.

Relevant facts and circumstances: Your partner and their ex-spouse purchased an investment property as joint tenants. Your partner and their ex-spouse finalised their marital settlement and a family court order was issued instructing that the property be transferred to your partner within 21 days. There were significant delays in the title transfer due to issues between legal representation for both your partner and their ex-spouse with the Land Titles office. As such legal title on the property was not transferred from the ex-spouse to your partner until over a year later. Your partner intended to transfer 50% of their interest in the property to you as soon as the title had changed to them. This was expected to happen by the end of the 21 days. Once your partner's ex-spouse's interest was transferred to your husband, they immediately transferred a 50% interest to you. You and your partner are now joint tenants for the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: 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, or relate to the earning of exempt income or a provision of the taxation legislation excludes it. Taxation Ruling TR 93/32 explains that the net 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. An example of where the equitable interest may differ from the legal interest is when an owner is holding their share as trustee for the other owner. A Family Court order dealing with settlement of jointly owned property may also alter this equitable interest. 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 private agreement, either oral or in writing stating otherwise unless there is sufficient evidence that the equitable interest is different to the legal interest. Where an owner and a relative agree to split the income and expenses of a rental property it is considered to be a private arrangement between the individuals involved. It does not alter the fact of who is legally entitled to their share of the income and liable for their share of the expenses. You provided a copy of the terms of settlement of an Order under the Family Law Act 1975 which sets out how the joint assets of your partner and his ex-spouse were divided . The Order provided that within 21days of the orders that your partner's former spouse transfer and assign to your partner their right, title and interest in the property and your partner discharge the mortgage of the property and pay their former spouse a sum of money for the property. Your partner intended to transfer 50% of their interest in the property to you as soon as the title had changed to them. This was expected to happen by the end of the 21 days. Your partner held legal title to 50% of the property until their ex-spouse's share was transferred to them. However, because of the Court Order, they had an equitable interest of 100%. Even though your partner may have intended to transfer 50% of the title to you, this is considered to be a private arrangement and, consequently, you do not have either a legal or equitable interest in the property until the title transfer actually happens. Therefore you are entitled to 50% of the income and expenses of the property from the date that the transfer happened.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.