EDITED VERSION OF NOTICE OF PRIVATE RULING
Authorisation Number: 34382
This Ruling is a 'Private Ruling' for the purposes of Part IVAA of the Taxation Administration Act 1953.
YEAR(S) OF INCOME TO WHICH THIS RULING APPLIES:
Year ended 30 June 2005
TAX LAW:
Income Tax Assessment Act 1997 Subsection 6-5(1).
Income Tax Assessment Act 1997 Section 8-1.
WHAT THIS RULING IS ABOUT:
Are you required to declare money received from boarding international 'Homestay' students as assessable income pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
THE SUBJECT OF THE RULING:
You are considering hosting International students from an International College. You will host one student at a time, for varying periods of time each.
You will receive $xxx for several weeks board from the College whom the students pay the money to.
You are required to provide 2 meals per day to the students and a room and facilities in your home.
RULING:
Are you required to declare money received from boarding international 'Homestay' students as assessable income pursuant to section 6-5 of the ITAA 1997?
No.
EXPLANATION: (This does not form part of the Notice of Private Ruling)
Pursuant to section 6-5 of the ITAA 1997 assessable income for Australian residents includes the ordinary income derived directly or indirectly from all sources during the income year.
Where a property or part of a property is rented out, the rental income is normally regarded as ordinary income and therefore part of the taxpayer's assessable income.
However, where there is a non-commercial arrangement and where a payment is received for board only (direct reimbursement) then the income is considered to be a domestic arrangement not giving rise to assessable income.
Taxation Ruling IT 2167 provides the Commissioner's guidelines in determining what constitutes a rental situation and the treatment of rental income and deductions.
Paragraph 17 of IT 2167 states the following in relation to domestic and other non assessable situations;
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.
Homestay Students
The term 'Homestay' is used to describe accommodation provided to local and overseas people studying or training at Australian Universities or other educational institutions.
The students/trainees live with the host family in their home. They are provided with their own room, which is suitably furnished, bathroom facilities, and also main meals are provided every day. They may also get laundry and ironing done, and occasional transport provided. They may be required to help out with household chores and keep their room clean.
Homes that don't offer these conditions don't get listed as suitable by the educational institutions. Housing Officers at the institutions determine how much the student/trainee pays. The payments are designed to cover the costs to the host of supplying food, the utilities, and other minor expenses.
In characterising 'Homestay' payments in the hands of the homeowner, what will be most significant is whether they result from a genuine commercial relationship, involving a profit making purpose, or otherwise.
The typical situation is where a homeowner has one or two students lodging with the family, and charges them an amount set by the Housing Officers at the educational institutions. These amounts should be regarded as contributions to the costs of accommodating the students in the home. They are set having regards to the normal cost of supplying food, and other utilities, and overheads, for the student. These rates are not regarded as true commercial rates with a built in reward component to the homeowner for the use of parts of the house. While there might be some profit on occasions to the homeowner, these amounts will generally be small having regards to the expenditure incurred.
In the vast majority of cases the 'Homestay' provider will not be carrying on a business and Homestay arrangements will usually not create tenancy. There is an essential difference between those people that advertise for lodgers and provide board and lodging in an establishment on an arms length basis and 'Homestay' arrangements. 'Homestay' arrangements are ordinarily not commercial by nature.
Where a family takes one or two students/trainees into their home the arrangement is similar to the type of arrangement outlined in paragraph 17 of IT 2167.
From the information provided, the boarding in your home of the overseas student comes under the category of 'Homestay'. There is no genuine commercial arrangement involving a profit making purpose, therefore the income is not assessable and no deduction for expenses is allowable.
Disclaimer
The Register of Private Binding Advice is published as a public record of the binding advice issued by the ATO. Each piece of advice is based on a specific set of circumstances advised to the ATO and the law in force at the time of the advice, and is considered binding only in respect of the person/s or entity/ies on whose behalf the advice was sought. The Register is a historical record of advice provided, and is not updated to reflect changes in the law, withdrawal of advice or any other change in circumstance. Each piece of advice has been edited to avoid disclosing the identity of the person or entity on whose behalf advice was sought and published advice may therefore not disclose all the relevant facts or circumstances on which the advice was based. For these reasons, advice published in this Register cannot be relied upon as precedent for any other person or entity.