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  1. #1

    Default One for the accountants on the Forum - re Tenants in Common

    I have an investment property in Australia which is owned with my wife as tenants in common 99% me 1% my wife.

    I have just been reading a book with a section regarding property ownership structures which states that

    "Where assets are owned in Australia by a couple as tenants in common, that ownership structure is regarded as a partnership, hence a partnership taxation return must be filed".

    Can anyone confirm this as it is the first time I have come across this. Do I have to file a partnership tax return in Australia and if so is this in addition to the personal tax returns myself and my wife have filed in the past?

    Any guidance appreciated

    Regs

  2. #2

    Default

    Hi Regs,

    That is an interesting question.

    I used to operate as a CPA in public practice and tax agent in Australia. Most married couples would buy properties as joint tenants, so the split applied by the ATO was always 50:50.

    I used to recommend to some of my clients that they purchase properties as tenants-in-common, but none ever did. So your question did not come up.

    The general position in both Australia and in New Zealand, is that the ownership of rental properties does not constitute a business. It is an investment, so no business expenses are claimable. Once the investment activities grow to many properties, such as five or more and the owners collect the rents, manage the properties and attend to the repairs, then both the ATO and IRD are more inclined to accept that it is a business and allow business-related claims, such as home office expenses.

    So why did I tell you this? taking you on such a circuitous route?

    Where an activity is a business and is conducted by two or more people, but not in a company or trust, the ATO will say this is a partnership and a partnership tax return has to be lodged.

    As rental property investment is not considered to be a business, even where the owners have joint ownership (as tenants-in-common), and it may look like a partnership, partnership Accounts and tax returns do not need to be produced.

    There are a number of criteria for determining if a partnerhsip exists, and it would take more than simply joint ownership of property to establish that a partnership exists in fact or at law so that partnership tax returns would have to be lodged.

    I seriously doubt that the ATO would insist on a partnership tax return in the circumstances outlined above by you. As long as the net income or loss of the rental property is determined and apportioned to each taxpayer's tax return, the tax laws have been observed.

    In your tax return, rental income and partnership income are always in different sections.

    I trust that this clarifies your query.


 

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