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Edited version of private advice
Authorisation Number: 1012682477769
Ruling
Subject: Income and expenses from flat mate
Question
Are you required to declare the amounts received from your friend?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You have built a home and have taken in a friend who pays you a weekly amount towards the mortgage.
Your friend has exclusive use of a bedroom and bathroom and you share the rest of the home.
Your friend also pays half of the power but does not contribute to the rates.
You estimate that if you rented the whole house out, you could get rent of approximately three times the amount you receive from your friend.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(1)
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Subsection 6-5(1) of the Income Tax Assessment Act 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts.
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 does not give rise to the derivation of assessable income (FC of T v. Groser 82 ATC 4478; 13 ATR 445).
Where an amount received from renting is below what a person in the same situation could receive for a property in a normal commercial arrangement, the reason for that discrepancy needs to be examined.
You estimate that you could rent your property out for in excess of $xxx per week and you charge your friend $yyy per week for the use of approximately half of the property.
Taxation Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases, examines the situation where a property is let in a non-arms-length transaction. Where the rent payment received amounts to a contribution to expenses, and is not considered as a reward to the home owner but is instead a private arrangement, the rent is not considered assessable income.
In your case, the amount you receive is a contribution to assist you with your mortgage payments. Your arrangement is considered to be a non-commercial arrangement as the amount charged is considerably less than what a person would charge in a normal commercial arrangement. As your arrangement is considered to be non-commercial, you are not required to declare the amount you receive. Likewise, any expenses you incur are also not deductible.