Private ruling: Apportionment of rental property income and expenses between co-owners
Published: November 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are the co-owners of an investment property required to apportion the property's net income or losses according to their legal interest in the property? | A1: Yes.

Relevant facts and circumstances: You own a share of a property as a tenant in common with party A. The entire property is under one title. You live in one of the two houses on the property, the other house is let as rental accommodation. You have agreed with party A that the house you live in is for your exclusive use and benefit, and the other house is for short stay rental only. You pay a commercial rate of rent for the house you live in (reduced only in proportion to the area/value of the part of the property you occupy). Party A collects all the rent on the rental property. All the property expenses such as rates are shared between you and party A in the same proportion as the ownership.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Taxation Ruling TR 93/32 discusses the division of income or losses incurred on a rental property between co-owners. According to TR 93/32, net income or loss from a rental property must be shared according to the legal interest of the owners, except in very limited circumstances. Legal interest is determined by the legal title to a property. Co-owners of a property who are joint tenants of that property will hold identical legal interests in the property. That is, their interest must be the same in extent, nature and duration - for example, A and B, who each own an identical 50% share in a property are, provided the other requisite features are present, joint tenants of that property. On the other hand, the legal interest of tenants in common need not be identical. That is, the extent, nature and duration of each co-owner's interest need not be the same - for example, C owns a 30% share of a property while D owns a 70% share of the property. C and D are, provided the other requisite features are present, tenants in common. An important feature of both a joint tenancy and a tenancy in common is the legal interest of the tenant. It is this legal interest which ultimately determines, among co-owners of property, the division of the net income or loss from the property. In your case, as tenants in common, you and party A need to include the proportion of any net income or losses in accordance with the proportion of ownership in your respective tax returns.

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