No splitting of rental income for couple

In a succinct judgment, the Administrative Appeals Tribunal (AAT) has affirmed amended assessments issued to a taxpayer for the 2003 to 2005 income years to include in his income 100% of the rental income and deductions in relation to a commercial property owned by the taxpayer.

Background

The taxpayer was the registered proprietor of a commercial property in Dee Why, a suburb of Sydney, and had lodged his tax returns on the basis that the rental income derived in respect of the property was shared equally between him and his wife. However, the Commissioner formed the view that as the property was in the taxpayer's name only, the rental income from the property belonged to the taxpayer alone. In doing so, the Commissioner adjusted the wife's assessments by removing 50% of the rental income and deductions. The taxpayer sought to reinstate the original assessments.

The taxpayer claimed that the property was an asset of a "tax law partnership" between him and his wife. This was asserted on the basis that he and his wife constituted "an association of persons … in receipt of ordinary income or statutory income jointly" per the definition of "partnership" contained in s 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The taxpayer also contended that he and his wife had a mutual intention that the property be a "joint marital asset", held beneficially by them on a 50/50 basis. Among other things, he claimed that:

the property was purchased in about 1990 from joint marital funds that came from the sale of a home unit development undertaken by the taxpayer and his wife;financial statements had been prepared since 1990 on the basis that the property was a jointly held asset;tax returns had been prepared since 1990 on the basis that the property was a jointly held asset;he and his wife became registered for GST as a partnership in 2000; andincome from the property was applied for use by both himself and his wife.

Decision

Essentially, the AAT was not satisfied with the evidence presented before it. It noted the absence of the wife from giving evidence (noting that the taxpayer and his wife were separated at the time of the hearing), as well as a lack of documentation (ie no written partnership agreement and no partnership returns lodged). The AAT held that the evidence did not show that the property was "jointly owned", nor that the couple were in receipt of income jointly.

The taxpayer argued that his wife had authorisation to withdraw money, and did so, from his bank account (although no evidence of the authorisation was produced). However, the AAT said that, even if the wife was entitled to withdraw money from the account, "that does not show that [the couple] were in receipt of income jointly; only that [the taxpayer] (who derived the income) chose to dispose of it by allowing [his wife] to spend it". In this regard, the AAT noted that there was a distinction between the receipt of income and its disposition. Accordingly, the amended assessments were affirmed.

Re Harbutt and FCT [2013] AATA 8, www.austlii.edu.au/au/cases/cth/AATA/2013/8.html.