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Edited version of your private ruling
Authorisation Number: 1012537848787
Ruling
Subject: Rent arrangement
Question
Are you assessable on the amount paid to non Deductible Gift Recipient (DGR) charities by your child in lieu of rent?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commenced on
26 November 2012
Relevant facts
You and your spouse own a property which you used to rent out at commercial rent.
Your child now lives in the house and pays all bills relating to it.
You do not require your child to pay rent to you. As they do not pay rent, they make donations to non DGR charities.
Together you and your child decided on which charities would benefit and you leave it up to your child to pay the amounts.
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.
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 do not give rise to the derivation of assessable income (FC of T v. Groser 13 ATC 445; (1982) 65 FLR 121; 82 ATC 4478).
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.
In your case, your child lives in your property and pays for all expenses relating to the property. As you do not require them to pay you rent, they donate an amount approximating a rent amount to non DGR charities.
This arrangement is considered to be a domestic arrangement. As such you do not have to declare the amount that your child pays to the charities. Furthermore, you are not entitled to any deductions relating to the property.