Private ruling: Rental property income
Date of advice: 6 October 2015
Published: November 2015
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you exclude the income and expenses for a rental property from your income tax return, given that you are able to show that your ex-spouse receives all the income from the property? | A1: No. | Q2: Is the income from the property which was subject to a property settlement, able to be attributed to another individual who received all the income and benefits from that property? | A2: No.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • the private ruling application, and • the documents provided with the private ruling application. You jointly purchased a property as the family home with your spouse. You and your husband have lived apart for some time and have been formally separated. Your ex-spouse rented out the property without your knowledge or having signed any rental lease. At all times your ex-spouse controlled the property and you received no rental income from the property or from your ex-spouse for the property.

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

Reasons for decision: Summary: Taxation Ruling 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 interest is different from the legal title. You co-own at property; your interest in the property, is X%. Since your separation from your ex-spouse you have not received the benefit of any rental income; instead your ex-spouse controlled the property and received all rental income. Unfortunately, this is not sufficient to establish that equitable interest is different from legal title. Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between the co-owners, either oral or in writing stating otherwise. TR 93/32 provides the following example: Mr and Mrs Y purchase a rental property. Mr Y contributed 80% of the funds used to purchase the property while Mrs Y contributed 20%. They register their purchase as joint tenants. They also sign a written agreement to share any profits or losses from the property in accordance with their capital contributions, but share interests in the property equally. Owning and renting out the one property does not amount to carrying on a business. Mr and Mrs Y are not partners at general law although their relationship is treated as a partnership for income tax purposes. Net profits and losses from the property should be shared in the same proportion as their legal ownership interests, i.e., 50:50. Their agreement to share the profits and losses in proportion to their capital contributions is a private arrangement which has no effect for income tax purposes. Although you did not receive any income from the investment property, the income and expenses must be shared according to the proportion of the legal interest in the properties held by you the other co-owner. While we can appreciate your circumstances, the Commissioner does not have any discretion under the tax law to allow a taxpayer to include more or less than their legal entitlement to investment property income and expenses. Therefore, you are required to include X% of the income (and expenses) as you hold a X% legal and equitable interest in the property. This income cannot be attributed to another party who may have received all of the benefits.