Private ruling: Ownership of rental property
Published: February 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you deemed the owner of the rental property from the date of acquisition? | A1: No.

Relevant facts and circumstances: Your ex-spouse purchased a rental property in their name only. The loan agreement with the financial institution was also only in your spouse's name, as it was easier to organise given that you were working away at the time the property was purchased. The rental property income and expenses was always included in your spouse's income tax return. You paid all costs associated with the property, including loan repayments and made all decisions in relation to the property. During a divorce settlement some years later, a court ordered that the beneficial ownership of the property be transferred to your name. Your ex-spouse continued to declare the rental property in their income tax return and carry forward the losses. A number of years after the judgement you acquired a loan from a financial institution and began paying loan repayments with those funds. A little while later you had the legal title of the property transferred into your name.

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

Reasons for decision: Summary: Taxation Ruling TR 95/25 states that the deductibility of interest on a loan generally depends on the purpose of the borrowing and the use to which the borrowed funds are put. Where a borrowing is used to acquire an assessable income producing asset the interest on this borrowing is considered to be incurred in the course of gaining or producing assessable income and is generally deductible: TR 95/25. Generally, the net income or loss from a rental property must be shared according to the legal interest(s) of the owners (as set out in the title deed) in that property: paragraph 6 of Taxation Ruling TR 93/32. Where there is sufficient evidence to establish that the equitable interests are different from the legal title, the net income or loss from that rental property must be shared according to the equitable interests in that property. Equitable interests are generally established by the contributions made to the purchase of the property, including any borrowings obtained to fund the purchase. In your situation, your spouse obtained a borrowing in their name only, which was used to fund the purchase of a rental property. Further the title for the property was also only registered in their name. Subsequent to this, the income and expenses from the property were claimed in their own income tax assessments. While you have stated that you paid for various expenses, apart from those funded by your spouse's loan, in the context of the arrangement they are considered incidental or part of a private agreement and not determinative of beneficial ownership. The facts of the arrangement when viewed as a whole support the conclusion that the equitable interest is the same as the legal title. No evidence has been provided to rebut this conclusion. It is therefore considered that your beneficial interest in the property did not commence upon the purchase in 200X, and any net losses referable to the property must be applied in accordance with the legal title.