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Edited version of private ruling

Authorisation Number: 1011624187805

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Ruling

Subject: Assessability of rental income

Are the rental incomes you receive from your two properties assessable?

Yes.

This ruling applies for the following period:

1 July 2009 to 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You had half share in your first property and then inherited the property from your partner when they passed away.

You purchased your second property and lived in it for only a week before going into a nursing home.

Both the properties are rented out at market value.

The properties are rented out by a real estate agent and are not tenanted by any family members.

The rental income is paid directly to your nursing home.

Relevant legislative provisions

Subsection 6-5(2) of the Income Tax Assessment Act 1997

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

Rental income is characterised as ordinary income, it is earned, expected, relied upon and has an element of regularity.

Taxation Ruling TR 93/32 (TR 93/32) outlines that a person who has legal title to a property is required to include the rental income or loss unless there is sufficient evidence to establish that the equitable interest is different from the legal title.

Taxation Ruling TR 98/1 (TR 98/1) outlines that rental income is generally assessable when received or applied at the taxpayers' direction.

In your case, you have two rental properties that you have rented out through a real estate agent. You have legal ownership of the properties and the rental income goes to the payment of your nursing home through your direction.

The rental income therefore should be included as your assessable income and expenses associated with the property may be claimed as deductions against the rental income.

Any rental income received by residents of nursing homes whether they are renting their residential home or other investment properties must be included in assessable income. Neither the 1936 Act nor the 1997 Act provides an exemption from income tax for residents of nursing homes who are renting out their main residence or other rental properties. The normal rules applicable to rental properties will apply.

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