Disclaimer This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011511243327
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Payment from lodger
Question
Will the weekly amount of $X per room that you will receive for the letting of two rooms to a friend be considered assessable income where the market rate of rent for a room in your area is more than $Y per week?
Answer: No.
This ruling applies for the following periods:
1 July 2010 to 30 June 2012
The scheme commenced on
1 July 2010
Relevant facts
You are renting two rooms of your home to a friend and their dependant to assist during their time of financial hardship. The following conditions apply:
They pay $X per week per room. The amount charged does not cover the household expenses and does not include rates, water, insurance or mortgage expenses.
Your house has a number of bedrooms and the average income you could expect to receive for renting the house is $Z per week.
The market rate for renting a room in your area is more than $Y per week.
Your friend will reimburse you for their use of utilities.
There is no formal agreement in place.
You do not intend to rent the room when they move out.
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 82 ATC 4478; 13 ATR 445).
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.
As the payments you will receive are well below market rate, it is clear that the arrangement you propose is not a commercial one. You do not intend this arrangement to be permanent. You wish to merely receive a contribution towards your household costs. It would not be expected that the low amounts you will receive would exceed your costs in relation to the rooms. It is considered that the arrangement is more accurately described as private or domestic in nature rather than a profit making activity.
Therefore, it is considered that the receipt of $X per room per week in your case would not constitute assessable income.