Private ruling: Rental property income
Published: December 2011
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Can you declare the rental income from the property you had built on land to which your relatives hold legal title? | A1: 

Relevant facts and circumstances: Your relatives own a large property where they live in their principal place of residence. Based on a mutual understanding with your relatives, some time ago they allowed you to build a house on their property. The loan for the house to be built was approved in your name. Both the loan and building contracts are in your name. Your relatives did offer security to the bank in order for you to secure the loan to build the house. The title to the land is in the names of your relatives. The land has not been subdivided. You currently reside away from the property, and are considering putting tenants in the house. You do not consider that you are able to sell the house that you built on your relatives' property. You have an understanding with your relatives that if they sell their property, that you will be compensated by them.

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

Reasons for decision: Summary: Taxation Ruling TR 93/32 discusses rental properties and the relationship between ownership and apportionment of income and deductions between the owners. TR 93/32 explains 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 (paragraph 6). It goes on to explain at paragraph 41, that where taxpayers are related, for example, husband and wife, the equitable right is presumed to be exactly the same as the legal title. A person's legal interest in a property is determined by the legal title to that property under the land law 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. The house you have constructed, being situated on land to which your relatives hold the title, becomes part of their property. Your relatives are shown on the title deed to the property as the owners. Thus, any rental income and expenses from the property must be declared by them. In absence of evidence to the contrary, a property is considered to be beneficially owned by its legal owner (that is the person(s) registered on the title). It is also possible for legal ownership to differ from beneficial ownership. Where beneficial ownership and legal ownership of a property are not the same, there must be evidence that the legal owner holds the property in trust for the beneficial owner. Based on the facts that you have presented, there is no evidence that the beneficial ownership of the property differs from the legal ownership.

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