Private ruling: Rental income
Published: September 2011
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2011

Ruling: Question and answer | Are you required to include in your assessable income 50% of the rental income in relation to an investment property that is to be transferred to your former spouse as a result of a court order where the title of the property is still in both your names? | No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You and your former spouse own an investment property (property A) in joint names. The investment property was used as security to purchase a new property (property B). You and your former spouse divorced and as a result of a court order under the Family Law Act 1975 , the investment property is to be transferred to your former spouse. You are unable to transfer the title of the investment property to your former spouse at this stage as you are unable to pay off your existing loan that is secured by both the investment property and your new property. Your former spouse has agreed (in writing) to defer the transfer of the investment property and therefore allow you to continue to use the property as security for the new property. Your former spouse is receiving 100% of the rental income from the investment property.

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

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income includes income according to ordinary concepts, which is called ordinary income. It is included in a taxpayer's assessable income unless it is exempt, or is made non-assessable. Rental income is ordinary income. | Detailed Reasoning - Ownership interest in rental property: Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners states that a legal interest in property is achieved by the owner being the registered proprietor of the legal title to the land. Co-owners of a property who are joint tenants of that property will hold an identical legal interest in the property. According to TR 93/32, the 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 and your former spouse own a rental property as joint tenants, so you each hold an identical 50 percent legal interest. The net income or loss from the rental of the property must be shared accordingly, unless there is sufficient evidence to establish that your equitable interest is different from this legal interest. In your circumstances, the family court order states you are to transfer the investment property within six months from the date of the court order. There is sufficient evidence in your case to establish that your equitable interest in the property is different from your legal interest. A court order transferred legal interest to your former spouse. A financial institution has delayed the transfer and your former spouse has agreed (in writing) to this and your former spouse receives 100% of the rental income, you are not required to declare any rental income from the date of the court order.

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