Edited version of private ruling

Authorisation Number: 1011869367663

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Ruling

Subject: Income - homestay payments

Question 1:

Are homestay payments received by you assessable income?  

Answer:

No.

Question 2:

Are you entitled to a full main residence exemption under the capital gains tax (CGT) provisions?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on:

1 July 2006

Relevant facts

You provide accommodation in your home for a number of students under a homestay program.

The students are provided by local schools and colleges.

The students stay for a short period of time.

The students do not stay during the holiday periods.

You are paid an amount for each student.

The amount paid is used to pay all the household expenses of the students such as food, utilities and toiletries etc.

You make no profit from the amounts received.

All students can terminate their homestay arrangement at any time.

You provide all meals to the students.

Each student has their own room and access to all common areas of the house.

You do not advertise for students.

You receive no other funds directly from the students.

You will continue to accommodate students under the current homestay arrangements.

Relevant legislative provisions:

Income Tax Assessment Act 1997 section 6-5.

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-190

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.

The amounts received under the homestay arrangement are determined by the local schools and colleges to cover the expenses of accommodating the student in your home. The amount of the payment is set with regard to the normal cost of supplying food, utilities and overheads for the student. These rates are not regarded as true commercial rates and there is no built in benefit component paid to you for the use of parts of your house.

While the Commissioner considers the hosting of several students at any one time may be considered a business activity for example operating a boarding house, this will depend on the circumstances of each case.

In your case, you do not make a profit from the homestay arrangement and the nature of your activity is not considered a business. The amounts received by you are made in relation to a non-commercial or domestic arrangement and are therefore not assessable income under section 6-5 of the ITAA 1997.

Capital Gains Tax

Generally, under section 118-110 of the ITAA 1997 you can disregard a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it.

Main residence

Generally, capital gains tax does not apply to a person's sole or principal residence. 

However, section 118-190 applies to deem a capital gain or capital loss to have accrued to the extent to which the sole or principal residence disposed of was also used for the purpose of gaining or producing assessable income during the period of ownership. Taxation Ruling IT 2673 states at paragraph 9:

An appropriate part of any capital gain or capital loss on the disposal of a dwelling would come within the capital gains provisions in the income tax law where part of the dwelling is used for income producing purposes. Examples include where part of a dwelling is dedicated for use in deriving rental income from tenants and where a doctor's dwelling contains a surgery that is used solely as a place of business and is clearly identifiable as a place of business.

In your case, your main residence is not being used to derive rental income from the students staying at your main residence. Therefore provided you continue to accommodate students under the current homestay arrangements you will be entitled to the full main residence exemption and any capital gain or capital loss will be disregarded on the sale of your main residence.