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Ruling
Subject: rental income from relatives
Question
Is the rent you receive from your child considered assessable income?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commences on:
1 July 2011
Relevant facts and circumstances
Your child has a severe intellectual disability and receives a Permanent Disability Pension from Centrelink.
Your child lives at home with you and your spouse.
You have arranged that a portion of your child's pension be transferred to your living expenses account each payday.
You use your child's Centrelink Utilities Allowance to pay living expenses.
You regard this as a private arrangement to share the costs of living.
Your child will turn 21 during the 2011-12 income year and will then receive a full adult pension and become eligible for Centrelink Rent Assistance.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident includes all ordinary income derived directly or indirectly from all sources.
Taxation Ruling IT 2167 discusses the Commissioner's views on non-economic arrangements where property is let to relatives. There are situations where payments that are described as rent will not be assessable income and expenses will not be allowable deductions. This is particularly the case where the arrangement is not conducted at arm's length.
Paragraph 17 states:
Arrangements of this nature, whether the payment is said to be for board only or for lodging only or for both, are considered to be in the nature of domestic arrangements not giving rise to the derivation of assessable income by the recipient of the payments. It follows that the question of income tax deductions for losses and outgoings does not arise.
The payments you receive from your child are for board and lodgings. We consider that the payments are in relation to a private or domestic arrangement rather than a commercial transaction.
Therefore, the amounts paid by your child are not considered to be assessable income in your hands. Similarly, any costs you incur in relation to your property will not be deductible as they are not incurred in gaining or producing assessable income and are better described as private or domestic in nature.