Section 24: Property owned by co-owners

24(1)

For property co-owned with definite and ascertainable share, the co-owners shall not be assessed as an association of persons and their income computed separately as per their respective share under this Chapter shall be included in their total income.

24(2)

The relief available under section 21(6) shall be provided as if each co-owner is individually entitled to the said relief.

Explanation

Section Summary:

Section 24 of the new income tax law addresses the taxation of income from property that is co-owned by multiple individuals. The section clarifies that co-owners with definite and ascertainable shares in the property will not be treated as an "association of persons" (AOP) for tax purposes. Instead, each co-owner's income from the property will be computed separately based on their share and included in their total income. Additionally, the section ensures that each co-owner is entitled to the same tax reliefs as if they were the sole owner of the property.

Key Changes:

1. Separate Assessment for Co-Owners: Unlike the previous law, where co-owners might have been assessed as an AOP, the new law mandates separate income computation for each co-owner based on their share in the property.
2. Relief Entitlement: Each co-owner is entitled to the same tax reliefs (e.g., under Section 21(6)) as if they were the sole owner, ensuring fairness and clarity in tax treatment.

Practical Implications:

• For Taxpayers: Co-owners of property will now have their income from the property taxed individually, based on their share. This simplifies tax filing and ensures that each co-owner is only liable for their portion of the income.
• For Businesses: This change primarily affects individuals who co-own property, such as family members or business partners. It does not significantly impact businesses unless they are involved in property co-ownership.
• For Compliance Processes: Taxpayers must ensure that their share in the property is clearly defined and documented. They will need to report their share of income separately in their tax returns.

Critical Concepts:

• Definite and Ascertainable Share: This means that each co-owner's share in the property must be clearly defined and measurable (e.g., 50% ownership each for two co-owners).
• Association of Persons (AOP): An AOP is a group of individuals who come together for a common purpose and are taxed as a single entity. The new law ensures that co-owners are not treated as an AOP, avoiding potential complications in tax assessment.
• Section 21(6) Relief: This refers to specific tax reliefs available to property owners, such as deductions for repairs, maintenance, or interest on loans. Under the new law, each co-owner can claim these reliefs individually.

Compliance Steps:

1. Document Ownership Shares: Ensure that the ownership shares of each co-owner are clearly documented in the property deed or agreement.
2. Separate Income Reporting: Each co-owner must report their share of income from the property in their individual tax returns.
3. Claim Reliefs Individually: Each co-owner should claim applicable tax reliefs (e.g., under Section 21(6)) in their own tax filings.

Examples:

• Scenario 1: Two siblings, A and B, co-own a rental property with a 50% share each. Under the new law, A and B will each report 50% of the rental income in their individual tax returns. They can also claim deductions (e.g., for property repairs) individually based on their share.
• Scenario 2: Three friends, X, Y, and Z, own a commercial property with shares of 40%, 30%, and 30%, respectively. Each will report their respective share of the rental income and claim tax reliefs individually, without being assessed as an AOP.

This section simplifies the tax treatment of co-owned property, ensuring clarity and fairness for taxpayers.