FBR clarifies how income from jointly owned property and shared deductions should be treated for tax purposes in Tax Year 2027.
ISLAMABAD: The Federal Board of Revenue (FBR) has clarified the tax treatment of income earned by joint owners during Tax Year 2027 under the Income Tax Ordinance, 2001.
The FBR has issued an updated version of the Income Tax Ordinance, 2001, incorporating amendments up to June 30, 2026. The updated law provides guidance on determining taxable income where property is jointly owned by two or more persons.
Tax treatment of jointly owned property
Under Section 66 of the Income Tax Ordinance, 2001, where property is owned by two or more persons and their respective shares are definite and ascertainable, the owners will not be assessed as an association of persons (AOP) in respect of that property.
Instead, each joint owner’s share of income derived from the property during a tax year will be taken into account when calculating that individual’s taxable income for the relevant year.
The provision establishes the tax treatment of jointly owned property where the ownership proportions of the respective parties can be clearly determined.
However, Section 66 specifically does not apply when calculating income chargeable under the head “Income from Business”. Business income is therefore subject to the applicable provisions governing taxation under that head.
FBR explains apportionment of deductions
The FBR has also outlined rules governing the apportionment of expenditures, deductions and allowances under Section 67 of the Income Tax Ordinance, 2001.
Under the provision, where an expenditure, deduction or allowance relates to the derivation of income under more than one head of income, the amount must be apportioned on a reasonable basis.
The same principle applies where expenditure relates to the derivation of income comprising taxable income and any class of income to which sub-sections (4) and (5) of Section 4 apply.
Similarly, where an expenditure, deduction or allowance relates partly to income chargeable to tax under a particular head of income and partly to another purpose, the amount must be appropriately apportioned.
Section 67 requires such apportionment to take into account the relative nature and size of the activities to which the expenditure, deduction or allowance relates.
Rules for allocating tax deductions
The FBR is also empowered under Section 237 to make rules for determining how expenditures, deductions and allowances should be apportioned.
These provisions provide a framework for determining taxable income where expenses or deductions cannot be directly attributed to a single source or category of income.
For Tax Year 2027, taxpayers with jointly owned property or income involving multiple sources or purposes are required to apply the relevant provisions when calculating their taxable income under the Income Tax Ordinance, 2001.
The clarification is particularly relevant to taxpayers who receive income from jointly owned property, as the law requires each owner’s ascertainable share to be considered separately rather than treating the joint ownership as an AOP, subject to the specific exclusion relating to business income.