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Edited version of your private ruling
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Ruling
Subject: Rental guarantee rebate
Question 1
Does the rental guarantee rebate (the rebate) you received form part of your assessable income for the year ended 30 June 2009?
Answer
Yes.
Question 2
Are you entitled to claim a deduction for allowable rental property expenses incurred where the amount of the rebate is included in your assessable income?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2009
Year ended 30 June 2010
The scheme commenced on
1 July 2008
Relevant facts and circumstances
You purchased a unit from a developer with the intent to rent it.
Under the purchase agreement you received a rebate from the developer (the rebate). This was received in the form of a reduction to the purchase price of the property.
In return you assigned the developer any and all rents in relation to the property between the rental start date and the rental end date (the assignment period).
The receipt of the rebate was subject to the following obligations:
§ the unit was to be made available for rent for the assignment period
§ you were not to interfere with or obstruct the letting of the property
§ you were not to terminate the letting agent's appointment during the assignment period
§ the assignment period commenced ten days after the completion of the purchase contract and ceased one year later.
If you did not meet the above obligations you were to repay to the developer the amount of the rebate less the net rent received by the developer from the property.
You incurred expenses relating to the rental property during the assignment period.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 21
Income Tax Assessment Act 1936 Section 102AC
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Summary
The rebate you received forms part of your assessable income in the year ended 30 June 2009 as it is consideration for the transfer of a right to receive income from the rental property.
The expenses you incurred relating to the rental property during the period the property is rented or available for rent are deductible to the extent that they are allowable under the income tax legislation.
Detailed reasoning
Rental guarantee rebate
Income under ordinary concepts
Section 6-5 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.
Section 21 of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where, upon any transaction, any consideration is paid or given otherwise than in cash, the money value of that consideration shall be deemed to have been paid or given.
In your case, the developer of your unit has guaranteed the rental income of your unit for the first year after purchase. Instead of paying you the rental income amount in cash, the developer has reduced the purchase price of the unit by the rebate amount.
Whilst you did not physically receive the amount of the rebate, section 21 of the ITAA 1936 deems you to have received an amount equal to the rebate.
The rebate is considered to be a capital amount as it is consideration for a capital asset, the capital asset being the right to receive rental income from the unit.
As it is a capital amount the rebate amount is not considered to be ordinary income and is not included in your assessable income by section 6-5 of the ITAA 1997.
Statutory income
Section 6-10 of the ITAA 1997 states that certain amounts that are not ordinary income are included in a taxpayer's assessable income by specific provisions of the tax legislation. This type of assessable income is referred to as statutory income.
A listing of these provisions is contained within section 10-5 of the ITAA 1997. Included on this list is section 102CA of the ITAA 1936 which discusses the situation where a taxpayer receives consideration for the transfer of the right to income.
Section 102CA of the ITAA 1936 states where:
(a) a right to receive income from property is transferred by a person (the transferor) to another person
(b) consideration has been received or is receivable in respect of the transfer
(c) the transfer is not to an associate of the transferor
the amount of the consideration is to be included in the transferor's assessable income in the year in which the right is transferred.
From the information you have provided, your situation meets the requirements of section 102CA of the ITAA 1936.
Thus, the rebate you received from the developer forms part of your assessable income.
Rental property expenses
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision of the taxation legislation excludes it.
You can claim a deduction for certain expenses you incur for the period your property is rented or is available for rent. However, you cannot claim expenses of a capital nature or a private nature. You may be able to claim decline in value deductions or capital works deductions for certain capital expenditure or include certain capital costs in the cost base of the property for capital gains purposes. Deductions may be allowable under various provisions of the legislation.
You will need to apportion your expenses where any of the following apply to you:
§ your property is available for rent for only part of the year
§ only part of your property is used to earn rent
§ you rent your property at non-commercial rates.
In your case, you have incurred expenses relating to your rental property during the period the property was rented or was available for rent.
You are entitled to a deduction for rental property expenses incurred during the period it was rented or was available for rent to the extent the deductions are allowable under a provision of the taxation legislation.
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