Edited version of private ruling

Authorisation Number: 1011859699067

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Ruling

Subject: Renting your residence to your employer

Question 1

If you rent your residence to your employer who provides you with accommodation as part of your employment contract, does the rental income so derived form part of your assessable income?

Answer

Yes

Question 2

Are the expenses incurred by you in respect of the property allowable deductions?

Answer

No

This ruling applies for the following period:

1 July 2011 to 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You own a property in the vicinity of your place of employment and your employer, under your employment agreement, is required to provide you with accommodation.

Your employer wants to rent your property from you and you will continue to live in the premises as a sub tenant in order to satisfy the conditions of employment.

The rent will be determined by the market rental as determined from time to time.

You are not a director or shareholder in your employer.

Should the rental arrangement go ahead, the property will be managed by a real estate agent.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts, which is called ordinary income. Ordinary income includes salary or wages and rent.

Under the proposed arrangement, your employer intends to enter into a lease agreement with you in order to grant the employer a lease over your residence that you will continue to occupy. This arrangement will satisfy a condition of your employment contract under which your employer is required to provide you with accommodation.

In these circumstances the payment of rent for your accommodation is considered to be part of your employment contract. As such, we do not consider that it is the intention of your employer to create any legal rights and obligations other than the rights and obligations which were agreed under your contract of employment. Accordingly, it is considered that the amount you will receive from the employer, purportedly paid as rent, is part of your salary or wages and as such is included in your assessable income under section 6-5 of the ITAA 1997.

Question 2

Section 8-1 of the 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, as you intend to lease the house that you own and are living in to your employer and you will continue to live in the house.

In our view, 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.