Private ruling: Rental deductions
Date of advice: 6 May 2026
Published: 13 July 2026
Ruling period: Year ended 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you legally entitled to declare the rental income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and claim deductions under section 8-1 of the ITAA 1997 on the granny house owned by your parents? | A1: No.

Relevant facts and circumstances: The property is owned by your parents with their names being registered on the title. The property is a dual occupancy; a granny house built for your relatives (both deceased) exists on the block of land along with your parents' house. As part of a succession plan, an agreement was established to transfer both the rental income and the responsibility for maintenance and repairs of the granny house to you. The agreement is in writing between you and your parents. You have received all rental income from the start of the agreement into your bank account. You have issued receipts to the current tenant in your name. The granny house is rented to a third party at commercial rates. Your parents will continue to pay the rates and insurance on the granny house.

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 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. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners outlines 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. 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 agreement between the co-owners, either orally or in writing stating otherwise. Where a co-owner forgoes their share of the rental income and/or pays for all the expenses this is a private arrangement between the co-owners. It does not alter the fact that they are legally entitled to their share of the income and liable for their share of the expenses. 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. As you are not on the title of the property as an owner, you are not legally able to declare the rental income from the renting of the granny house or claim maintenance and repairs as a deduction in your tax return. The agreement you have with your parents is a private arrangement and has no effect for income tax purposes. The income from the granny house must be declared in the tax return of the legal and equitable owners.