Private ruling: Rental property income and expenses - Joint ownership
Date of advice: 30 November 2015
Published: February 2016
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you claim 100 percent of the income and expenses on your rental property even though the property is held in joint names with another person? | A1: No.

Relevant facts and circumstances: You are the joint owner of an investment property with your former spouse. You each hold an equal interest in the property. You separated from your spouse. Your spouse signed a Statutory Declaration relinquishing their interest in the investment property. They have declared no further claims or financial interest, and made no further contributions to the cost of the property as of June 2012. You were unable to refinance the property into your sole name due to financial hardship. You have paid all expenses on the property since June 2012. All Income Tax Returns lodged since June 2012 attribute all rental income and expenses according to the legal interest of each co-owner in the property on a 50/50 basis.

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 Income Tax Assessment Act 1997 (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. 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. 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 agreement between the co-owners, either oral 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 considered to be 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. In your case, the equitable interest in the ownership of the property is not different from the legal title. Therefore, you must declare the income and claim the deductions with respect to the property in proportion with your legal interest in the property. As a co-owner of the rental property, there is nothing in the legislation which allows a choice to allocate income on a basis different to the legal title. While we can appreciate your circumstances, the Commissioner does not have any discretion under the tax law to allow a taxpayer to claim more or less than their legal entitlement to property income and expenses.