Edited version of your private ruling

Authorisation Number: 1012544875285

Ruling

Subject: Assessability of homestay income

Questions and answers

1. Is the income you will derive from a homestay arrangement assessable income?

No

2. Are there any capital gains implications in relation to the homestay arrangement?

No.

This ruling applies for the following period

Year ending 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts and circumstances

You intend on having a few overseas students stay with you in your home under a homestay arrangement.

You intend to be registered with the Australian homestay network.

You will be paid a set amount each fortnight.

The student will pay the agency an amount per week.

You will receive approximately a % of the money and you will be expected to provide the students with their own room, food, internet and electricity along with other day to day expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 108-5

Reasons for decision

Pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) assessable income for Australian residents includes the ordinary income derived directly or indirectly from all sources during the income year. 

Where a property or part of a property is rented out, the rental income is normally regarded as ordinary income and therefore part of the taxpayer's assessable income.

However, where there is a non-commercial arrangement and where a payment is received for board only (direct reimbursement) then the income is considered to be a domestic arrangement not giving rise to assessable income.  

Taxation Ruling IT 2167 provides the Commissioner's guidelines in determining what constitutes a rental situation and the treatment of rental income and deductions.

Paragraph 18 of TR IT 2167 states the following in relation to domestic and other non assessable situations;

'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.'

Home Stay Students 

The term 'homestay' is used to describe accommodation provided to local and overseas people studying or training at Australian Universities or other educational institutions.  

The students/trainees live with the host family in their home. They are provided with their own room, which is suitably furnished, bathroom facilities, and also main meals are provided every day. They may also get laundry and ironing done, and occasional transport provided. They may be required to help out with household chores and keep their room clean.  

Homes that don't offer these conditions don't get listed as suitable by the educational institutions.

Housing Officers at the institutions determine how much the student/trainee pays. The payments are designed to cover the costs to the host of supplying food, the utilities, and other minor expenses.

In characterising homestay payments in the hands of the homeowner, what will be most significant is whether they result from a genuine commercial relationship, involving a profit making purpose, or otherwise.

The typical situation is where a homeowner has one or two students lodging with the family, and charges them an amount set by the Housing Officers at the educational institutions. These amounts should be regarded as contributions to the costs of accommodating the students in the home. They are set having regards to the normal cost of supplying food, and other utilities, and overheads, for the student. These rates are not regarded as true commercial rates with a built in reward component to the homeowner for the use of parts of the house. While there might be some profit on occasions to the homeowner, these amounts will generally be small having regards to the expenditure incurred.

In the vast majority of cases the homestay provider will not be carrying on a business and homestay arrangements will usually not create tenancy. There is an essential difference between those people that advertise for lodgers and provide board and lodging in an establishment on an arms length basis and homestay arrangements. Homestay arrangements are ordinarily not commercial by nature.

Where a family takes one or two students/trainees into their home the arrangement is similar to the type of arrangement outlined in paragraph 17 of TR IT2167.

From the information provided, the boarding in your home of the overseas students comes under the category of homestay. There is no genuine commercial arrangement involving a profit making purpose, therefore the income is not assessable and no deduction for expenses is allowable.

Capital gains implications

You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. The disposal of a CGT asset is a CGT event. CGT assets include real estate acquired on or after 20 September 1985. The receipt of money from, and the act of, hosting students under a homestay arrangement is not a CGT event.

Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, must have not been used to produce assessable income and the land on which the dwelling is situated on and adjacent to should not exceed two hectares.

As the receipt of money from, and the act of, hosting students under a homestay arrangement is not a CGT event, and as any money received under this arrangement is not assessable income, there are no capital gains implications will arise from your intended arrangement of hosting a few homestay students.