Edited version of your written advice

Authorisation Number: 1012796750066

Ruling

Subject: Assessable income

Question

Is the payment received from your spouse assessable income?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are currently managing a number investment properties owned by your spouse.

You also co-manage with appointed real estate agents a number of other properties.

Additionally, you manage your spouse's portfolio of shares.

Your spouse will be paying you management fees.

You undertake bookkeeping and tracking of all investment income and expenses and prepare a consolidated annual statement for your spouse's return.

You have no prior property management experience.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during an income year.

The courts have addressed issues where a person pays their spouse for services.

In Case M55 80 ATC 366; (1980) 24 CTBR (NS) Case 30, an employee pathologist was denied a deduction for wages paid to his wife to take messages for him when he was on call. The Board considered that the expenditure was not incurred in gaining or producing the assessable income and was of a private or domestic nature. Dr Beck stated at ATC page 368, CTBR (NS) page 242 that:

If an employee pays another party to render some of the services for which the employee is paid, this expenditure is not a cost of deriving the income. It can be regarded as a cost of lightening the work load, of gaining time off, of filling a gap in the employees competence, or, perhaps of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded ...[from being deductible]

In Case S84 85 ATC 618, the taxpayer was a relieving magistrate. He paid his wife to undertake secretarial duties, principally answering the phone, whilst he was travelling as a relieving magistrate between different venues. It was agreed that his wife performed the duties however the claim was disallowed on the grounds that it was essentially expenditure of a private or domestic nature unrelated to the derivation of the taxpayer's income.

Although the above cases relate to employees, the principles are relevant in your circumstances.

In your case, you are managing your spouse's rental properties and share portfolio. You do not have any prior property management experience, however you are helping your spouse and the appointed agents to manage the investments. The arrangement and associated expenses are private in nature. As in Case M55, the payments you receive are not made in deriving your spouse's assessable income as the need for assistance arises from your personal situation. Therefore the amounts you receive are not assessable under section 6-5 of the ITAA 1997.

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