Private ruling: Treatment of rental income from common property
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the rental income received from renting your common property treated as being taxable in your hands? | A1: No. | Q2: Will the Commissioner set aside Taxation Ruling IT 2505 and allow you to declare the rental income from your common property as your assessable income? | A2: No.

Relevant facts and circumstances: You are a community association registered under the Community Land Development Act 1989 (CLDA 1989). You are currently developing property. A community association is similar to a strata plan. You own common property for which you receive rental income on behalf of your owners. Currently you have a large number of individual owners and this is expected to increase significantly before the land development is complete. You have requested that the ATO set aside IT 2505 and allow you to pay income tax in your own right on the rental income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision: Summary: The income received from the renting of common property is assessable to your individual owners as you are acting as agent for the proprietors in leasing out the common property. There is no provision within the taxation legislation which allows the Commissioner to treat the rental income as assessable to you. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. In working out whether you have derived an amount of ordinary income, subsection 6-5(4) of the ITAA 197 states that you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf. IT 2505 discusses bodies corporate under strata title legislation. Whilst community associations are constituted under the CDLA 1989 and subject to the Community Land Management Act 1989 there are many similarities between a body corporate and a community association. In your situation you are a community association that rents out common property. Common property is defined in section 3 of the CLDA 1989 as meaning the common property in a strata scheme as defined in the Strata Schemes (Freehold Development) Act 1973 (SS(FD)A 1973). Section 5 of the SS(FD)A 1973 defines common property as that part of the strata property which does not comprise part of any lot. Section 20 of the SS(FD)A 1973 states that the body corporate holds the common property as an agent for the proprietors of the lots. Based on the above, it is considered that you, as a community association, hold the common property as an agent for your owners. In your state the assessability of moneys received in respect of the common property, for example, fees derived from the letting of shops situated on the ground floor of a block of apartments where the ground floor forms part of the common property, constitutes assessable income of the individual proprietors (paragraph 17 of IT 2505). As per IT 2505, any rental income received by you is received on behalf of the owners. Each owner is assessable on their share of the rental income. There is no provision within the taxation legislation which allows the Commissioner to include the rental income as assessable income in your tax return.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.