Edited version of private ruling

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Ruling

Subject: rental income

Question

Is the rental income, not received, assessable income in the 2010-11 financial year?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are an Australian resident for tax purposes.

As a gift your relation transferred an overseas property to you. The transfer took effect in March 20XX.

The property has been rented for several years on a commercial basis. The current tenancy agreement commenced in January 20XX.

Your relation lives with you and has done so for more than six years.

After the transfer of the property to you, you altered the payment arrangements on the tenancy agreement and requested the monthly rental payments to be paid to your solicitor.

Since the transfer, your solicitor or you have not received any rent.

Prior to the transfer, the tenant has occasionally given some of the rental income to a sibling overseas. Your sibling would then pay the rates on the property.

Your sibling is disputing the transfer of the property.

You recently travelled overseas to try to resolve the issues with the rent.

The matter has been referred to your lawyer. The lawyer issued a demand letter, giving the tenant seven days to pay the previous five months rent. You have not received any rent money.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Rent is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997.

If an amount would be ordinary income apart from the fact that you have not received it, it becomes assessable income as soon as it is applied or dealt with in any way on your behalf or as you direct (subsection 6-5(4) of the ITAA 1997).

In your case, the rental income has not been applied or dealt with in any way on your behalf or as you directed. Therefore the rental income is not assessable under subsection 6-5(4) of the ITAA 1997.

Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income.

Paragraph 48 of TR 98/1 states that rent is generally assessable when received or applied at your direction. That is, rent is assessable on receipt even though it may relate to a past or future income period.

In your case, you have not received any rental income since the acquisition of your rental property.

You were entitled to receive rental income from March 20XX. However, you have not received any rent. As you did not receive any rental income in the 20XX-XX financial year, no rental income is included in your assessable income for that year.

Should you receive the rent in a later income year, then the rental income will be assessable in that year.