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Edited version of private ruling
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Ruling
Subject: Employer provided private rental accommodation
Question 1
Can you claim expenses for a property which you purchase and lease to your employer who will provide it to you as accommodation?
Answer: No.
Question 2
Can you claim expenses for a property which you purchase and lease to your employer who provides the accommodation to an employee other than yourself?
Answer: Yes.
This ruling applies for the following periods
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2010
Relevant facts
You wish to purchase a property which you will rent out. The property will be a house which you will lease to your employer privately at the market rate. Your employer will then provide the house to you as accommodation at the remote locality in which you work.
You will act as landlord of the property.
Should you leave the company or leave the locality, the company will continue to rent the property for your replacement.
If your employer does not wish to continue to rent the property from you, you will rent the property on the open market.
You are not intending to remain in the remote locality indefinitely, and do not wish to regard the rental property as your principal place of residence while you live there.
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.
Taxation Determination TD 2004/26 discusses an arrangement under which an employee and his employer lease and leaseback the employee's private residence. The principles discussed in TD 2004/26 apply to your circumstances.
If you purchase a house, lease it to your employer and live in the house you are not entitled to claim deductions for the interest or any other expenses you incur in connection with the property.
The essential character of expenses you incur in relation to your property is determined by the fact that they are paid to secure and maintain your private residence. In these circumstances, the expenditure constitutes outgoings of a private or domestic character and is not deductible under section 8-1 of the ITAA 1997.
Whether or not the property was your principal place of residence does not change the fact that the arrangement is considered private in nature.
It should also be noted that any leaseback arrangement may have Fringe Benefits Tax consequences for your employer and that in some circumstances the amounts received from your employer may be assessable to you as income with no deductions allowed against this income.
However where your employer leases the property from you at arm's length to provide to an unrelated third party, your losses and outgoings for that property may be claimed as a deduction as it would be considered to be a bona fide rental situation.