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Edited version of your written advice
Authorisation Number: 5010047991424
Date of advice: 13 December 2017
Ruling
Subject: Property rented to relative
Question 1
Will your share of the payment you receive from your child to stay at your unit be included in your assessable income?
Answer:
Yes
Question 2
Are you entitled to a deduction for your share of the expenses such as mortgage interest, council rates and insurance relating to the property?
Answer:
Yes
This ruling applies for the following period
Year ended 30 June 2018
The scheme commenced on
1 July 2017
Relevant facts
You purchased a residential property to provide a relative with accommodation.
Your relative pays you market rental.
Your relative has special medical circumstances and is unable to work.
You gift an amount each week to your relative to purchase groceries and other living essentials.
You declare the rent as income, and do not claim any part of the amount gifted to your relative as a deduction.
There is no requirement recorded for you to gift your relative any specific amount of allowance.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (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.
In general, a landlord is assessable on rental income received under section 6-5 of the Income Tax Assessment Act 1997 but may claim deductions for losses and outgoings incurred in gaining that income.
The Commissioner provides guidance on the issue of letting of property to relatives in Taxation Ruling IT 2167. Where property is let to relatives the essential question for decision is whether the arrangements are consistent with normal commercial practices in this area. If they are, the owner of the property would be treated no differently for income tax purpose from any other owner in a comparable arm’s length situation.
Therefore where a commercial rate of rent is received for the property rented by your relative you would be required to return the rental income in your tax return and would be entitled to the overall deductible expenses for the property.
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