Edited version of private advice

Authorisation Number: 1052258644812

Date of advice: 4 June 2024

Ruling

Subject: CGT - assessable income

Question

Are the payments the taxpayer receives for board and lodging to be included as assessable income?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Individual A commenced living at the taxpayer's home residence in 20XX through the Australian Homestay Network (AHN).

Individual A went back to another country at the beginning of 20XX during university holidays.

Due to Covid lockdowns, individual A was unable to return to Australia until July 20XX.

Individual A asked the taxpayer if they could board at their home residence outside the AHN contract when they returned to Australia.

The taxpayer agreed and kept the fee the same as the amount which was charged during the AHN contract.

Individual B commenced living at the taxpayer's home residence in February 20XX for a one-month duration under an AHN contract.

In May 20XX, the taxpayer agreed to have individual B return to board at her home residence for the same amount as charged during the AHN contract.

The taxpayer charges both individual A and B $XXX a week, which includes utility bills and three meals a day.

The agreement was verbal and has no end date put in place.

Individual A and B have their own house keys, their own bedroom and share all other living spaces with the taxpayer.

The taxpayer has no expectations for individual A and B to do any domestic chores except keeping their own bedrooms clean and doing their own laundry.

The taxpayer treats individual A and B as if they were members of the family.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Issue

Question

Summary

The Commissioner is satisfied that the arrangement the taxpayer has with the two individuals who live with her in her home is considered a domestic arrangement and the payments the taxpayer receives has no profit-making purpose, therefore, is not considered as assessable income under section 6-5 of the ITAA 1997.

Reasons for decision

Assessable Income

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 82 ATC 4478; 13 ATR 445).

Domestic arrangements

Taxation Ruling IT 216, Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases, states at paragraph 17, while dealing with payment by family members of an amount for "board and lodging" the following:

Arrangements of this nature, whether the payment is said to be for board only or for lodging only or for both, are considered to be in the nature of domestic arrangements not giving rise to the derivation of assessable income by the recipient of the payments. It follows that the question of income tax deductions for losses and outgoings does not arise.

Paragraph 18 of IT 2167 discusses the occupancy of part of a residence on the basis of the occupants' sharing household costs such as food, electricity, etc. The decisive factor in such cases will be the characterisation of the arrangements, that is, do they produce assessable income. The paragraph states:

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.

As the payments that the taxpayer receives from the two individuals is for sharing costs of food and utilities, the Commissioner is satisfied that the taxpayer would not expect to have any surplus money left over, therefore the taxpayer would only receive a minor, if any, benefit from the living arrangement.

Therefore, the payments the taxpayer receives for the boarders are a non-commercial or domestic arrangement and consequently these amounts are not assessable income under section 6-5 of the ITAA 1997.

Note: Your main residence (your home) is generally exempt from capital gains tax (CGT) as long as it hasn't been used to produce income - meaning you haven't run a business from it or rented it out. Further conditions can be found on ato.gov.au and searching for QC 59553.

As the payments from your boarders are not assessable, no deduction is allowable for the expenses incurred in relation to the amounts received.

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