Private ruling: Rental income and deductions – equitable vs legal interests
Date of advice: 18 October 2018
Published: December 2018
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is 50% of the rental income received from the property included in A’s assessable income? | A1: Yes. | Q2: Is 50% of the rental income received from the property included in B’s assessable income? | A2: Yes. | Q3: Is A entitled to claim 50% of allowable expenses in relation to the property? | A3: Yes. | Q4: Is B entitled to claim 50% of allowable expenses in relation to the property? | A4: Yes.

Relevant facts and circumstances: A and B agreed to purchase a property jointly. A and B each paid 50% of the deposit, conveyancing and legal fees and were listed as joint borrowers on the mortgage taken out to fund the balance of the purchase price. A and B each pay 50% of the mortgage repayments. A was incorrectly registered on the legal title of the property as sole owner. Rental income from the property is deposited into A and B’s joint bank account. Property expenses are paid from the joint bank account.

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 Income tax: rental property- division of net income or loss between co-owners refers to the division of the net income or loss between joint owners of a rental property. The ruling states that income/loss 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 have provided evidence to support the conclusion that the equitable interest does not follow the legal title. It is accepted that, while B is not the legal owner of the property they have an equitable interest in it. As such, the profit/loss from the property should be shared on an equitable rather than legal basis.