Tax treatment of property owned by persons

Tax treatment of property owned by persons

The Federal Board of Revenue (FBR) has unveiled insights into the tax treatment of properties co-owned by two or more individuals through Section 66 of the Income Tax Ordinance, 2001.

The updated ordinance, incorporating amendments introduced by the Finance Act, 2021, provides a comprehensive framework for the assessment of income derived from jointly owned properties.

The text of Section 66 of the Income Tax Ordinance, 2001, is as follows:

66. Income of joint owners.—(1) For the purposes of this Ordinance and subject to sub-section (2), where any property is owned by two or more persons and their respective shares are definite and ascertainable –

(a) The persons shall not be assessed as an association of persons in respect of the property; and

(b) The share of each person in the income from the property for a tax year shall be taken into account in the computation of the person’s taxable income for that year.

(2) This section shall not apply in computing income chargeable under the head “Income from Business”.

This section aims to provide clarity and streamline the taxation process for jointly owned properties, ensuring that each co-owner’s share of income is properly assessed without being treated as an association of persons. Here are the key points explained:

1. Definite and Ascertainable Shares:

• Section 66(1) emphasizes that the property must be owned by two or more individuals, and their respective shares must be definite and ascertainable. This is crucial for determining the taxation treatment and ensuring fairness in the assessment.

2. No Assessment as Association of Persons:

• Subsection (1)(a) explicitly states that individuals owning a property jointly shall not be assessed as an association of persons in relation to that property. This recognizes the distinct ownership shares and avoids grouping individuals as an association for tax purposes.

3. Individual Share Consideration:

• Subsection (1)(b) highlights that each person’s share in the income derived from the property during a tax year shall be taken into account when computing their taxable income for that specific year. This individualized approach ensures that each co-owner is taxed based on their specific income share.

4. Limitation to “Income from Business”:

• Subsection (2) sets a limitation, specifying that Section 66 shall not apply in computing income chargeable under the head “Income from Business.” This indicates that the provision primarily pertains to income derived from jointly owned properties that do not fall under the category of business income.

This section provides a fair and equitable approach to the taxation of jointly owned properties, recognizing the distinct ownership interests of each individual. It aligns with the principles of transparency and precision in tax assessment, ensuring that co-owners are taxed based on their specific shares of income. The FBR encourages taxpayers to familiarize themselves with these provisions and seek professional advice for a comprehensive understanding of their tax obligations.