Co-ownership of rental properties

The way that rental income and expenses are divided between co-owners varies depending on whether the co-owners are joint tenants, tenants in common or there is a partnership carrying on a business of letting rental properties.

Dividing income and expenses according to legal interest

Co-owners who are not carrying on a business of letting rental properties must divide the income and expenses for the rental property in line with their legal interest in the property. If they own the property as:

  • joint tenants, they each hold an equal interest in the property
  • tenants in common, they may hold unequal interests in the property, for example, one may hold a 20% interest and the other an 80% interest.

Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between co-owners, either oral or in writing, stating otherwise. Interest on money borrowed by only one of the co-owners which is exclusively used to acquire that person’s interest in the rental property does not need to be divided between all of the co-owners. If you don’t know whether you hold your legal interest as a joint tenant or a tenant in common, read the title deed for the rental property. If you are unsure whether your activities constitute a rental property business, seePartners carrying on a business of letting rental properties.

Co-owners of an investment property (not in business)

A person who simply co-owns an investment property or several investment properties is usually regarded as an investor who is not carrying on a business of letting rental properties, either alone or with the other co-owners. This is because of the limited scope of the rental property activities and the limited degree to which a co-owner actively participates in rental property activities.

Most rental activities are a form of investment and do not amount to carrying on a business. However, where you are carrying on a business of letting rental properties in partnership with others, you must divide the net rental income or loss according to the partnership agreement. You must do this whether or not the legal interests in the rental properties are different to the partners’ entitlements to profits and losses under the partnership agreement. If you do not have a partnership agreement, you should divide your net rental income or loss between the partners equally,

Source: https://www.ato.gov.au/Forms/Rental-properties-2019/?page=3

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Jason Gwerder
Saturday, 4 January 2020

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