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Edited version of your written advice
Authorisation Number: 1012729635205
Ruling
Subject: Assessable income
Question
Are the monies paid by the boarders assessable income to you?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commences on:
1 July 2009
Relevant facts and circumstances
You are the sole title owner of your former matrimonial home.
Your spouse resides at the former matrimonial home with full control over the property.
A Family Court order has:
• Recognised a joint entitlement to the property
• Specified a certain date when the property is to be listed and marketed for sale
• Allowed your spouse exclusive possession of the property prior to the property being sold
• Required your spouse to pay all costs associated with the property
• Allowed your spouse to take on boarders to cover the costs of the property
Your spouse has been renting out several of the bedrooms to boarders.
You do not receive, nor will you receive, any of the excess income from the property.
Upon completion of the sale of the property, the proceeds, after the relevant expenses and liabilities have been paid, will be distributed between you and your spouse.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 provides that assessable income includes income according to ordinary concepts, which is called ordinary income.
Whether or not money received from boarders represents assessable income depends on the full facts and circumstances of the case. In your case, this may become moot if it can be concluded that you have no entitlement to the money in any event.
Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners discusses the entitlement to receive money generated from a property. TR 93/32 notes that:
• Entitlement to receive money generated from the rent of a property normally follows the legal title to the property. As the sole registered owner, you would normally be entitled to receive all the money paid by any boarders, whether the money is assessable income or not.
• The entitlement by the legal owner may vary when the beneficial ownership of the property varies from the legal ownership, and there is sufficient evidence to support the existence of that beneficial ownership variance. A Family Court order dealing with settlement of jointly owned property may alter the equitable interest.
Entitlement to receive money from a property may also be affected by bona fide contractual arrangements entered in relation to the property. For example, a lease may give the lessee the right to sub-lease part of the property. Income from that sub-lease would be that of the lessee, not the lessor (property owner).
In your case, your situation is comparable to that of a lease and sub-lease agreement. The court order grants your spouse exclusive use of the property including the right to take in boarders. You do not receive any of the money from the boarders and you do not expect to receive any of the money.
Consequently, it is considered that none of the money paid by the boarders in your current circumstances would constitute assessable income to you.
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