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Edited version of your written advice
Authorisation Number: 1013083895582
Date of advice: 2 September 2016
Ruling
Subject: Income from a boarder
Question
Are amounts received by you for having a boarder in a granny flat included in your assessable income?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2016
The scheme commenced on
1 July 2015
Relevant facts and circumstances
You have a boarder staying in a self-contained granny adjoining your place of residence.
They pay you an amount per week for board, and you provide meals several times per week, and also provide other food several times a week.
The electricity and water do not have separate meters. You pay for all water and electricity costs.
You calculated the board you charge based on commercial rates, and taking into account use of a portion of the utilities, and repairs, but also taking into account the fact that the boarder receives a limited amount of income.
The boarder uses a mobile phone, even though there is a landline access point available.
The boarder responded to an advertisement placed some time ago, and is now regarded as a friend, and the arrangement is co-operative and friendly.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes all ordinary income derived directly or indirectly from all sources.
Rental income is normally regarded as ordinary income and therefore forms part of the taxpayer's assessable income. However, where there is a non-commercial or domestic arrangement, amounts paid for board or lodging do not give rise to the derivation of assessable income (FC of T v. Groser 13 ATC 445; (1982) 65 FLR 121; 82 ATC 4478).
Taxation Ruling IT 2167 considers the consequences of different rental income producing situations. Paragraph 18 of IT 2167 states that:
Situations arise where the owner of a residence permits persons to share the residence on the basis that all the occupants, including the owner, bear an appropriate proportion of the costs actually incurred on food, electricity etc. Arrangements of this nature are not considered to confer any benefit on the owner. There is no assessable income and the question of allowable deductions does not arise.
In your case, you receive an amount under a boarding arrangement to cover the expenses of accommodating a boarder in your granny flat. The amount of the payment is partially calculated on a commercial basis, reduced to acknowledge the amount of income the boarder receives. You provide some meals and other food to the boarder, and use part of his payment for his portion of the utilities, maintenance and rates. This amount is not regarded as a true commercial rate, and there is no built in benefit component to you for the use of the granny flat.
It is considered that the amounts you receive are made in relation to a non-commercial or domestic arrangement and are not included in your assessable income under section 6-5 of the ITAA 1997.
Further information
As the boarding income is not included in your assessable income, there are no deductions allowed in relation to the boarding arrangement.
Also this arrangement will have no impact on any main residence capital gains tax exemption of your principal place of residence.
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