Private ruling: Rental income and deductions
Date of advice: 10 December 2020
Published: February 2021
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim 100% of the rental income or losses associated with the Property? | A1: No | Q2: Are you entitled to claim 100% of the expenses in relation to the Property? | A2: No

Relevant facts and circumstances: You and your ex-partner built a property together.Construction of the property was completed in 20XX.The title of the property (Property) was in both your names as joint tenants.Your relationship broke down before construction of the property was completed. The Property was rented out during your ownership period and you also resided in the Property. The cost to build the Property was approximately $XXX, XXX. The Property was sold recently. A capital loss has resulted from the sale of the Property. There is a currently a debt associated with the Property. You will refinance the debt into your own name. You paid all expenses associated with the Property. Your ex-partner never contributed any money towards 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: You must claim rental income or losses and deductions in proportion to your legal interest in the Property. As you were a joint tenant holding an interest in the Property, this means that you include a percentage (ownership interest) of the rental income or losses and expenses in your tax returns. | Detailed Reasoning - Detailed reasoning: Income or losses 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 Generally, a legal interest in land is achieved by the owner being the registered proprietor of the legal title to the land. Where there is more than one person with a concurrent legal interest in the same land, those persons are co-owners of the land. It is the legal interest in the Property which ultimately determines, among co-owners of property, the division of the net income or loss from the property We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, for example, husband and wife, that the equitable right is the same as the legal title. Any capital gain or loss should also be apportioned on the same basis as the rental income or loss. | Detailed Reasoning - Application to your circumstances: While you and your ex-partner have separated, the legislation outlines that the division of net property income/losses are to be shared based on the legal interest of the owners and not equitable interest. This applies to the expenses incurred in relation to the Property You are not able to declare 100% of the income and claim 100% of the deductions on the rental property you formerly owned with your ex-partner. You must declare your share of the income and your share of the deductions in your tax returns based on legal ownership.