Edited version of private advice

Authorisation Number: 1012683202635

Ruling

Subject: Homestay

Question

Is the income received under the homestay arrangement assessable?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You are hoping to have students stay at your place under a homestay arrangement.

Currently under the Homestay Organisation a host receives $200 a week when food is not provided or $270 a week where meals are provided.

The amount covers, providing the student with their own room as well as cleaning, laundering, electricity and linen costs.

The Homestay Organisation also charges the host a fee.

You wish to have students stay at your home without joining the Homestay Organisation.

You will charge the students $200 a week where the student does not require meals or $270 a week where meals are provided.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Under subsection 6-5(1) of the Income Tax Assessment Act 1997, your assessable income includes ordinary income. Ordinary income has generally been held to include income from rendering personal services, income from property and income from carrying on a business.

Income Tax Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases provides guidelines about rental properties and discusses when rental income is regarded as assessable income. Where you rent out your property or part of your property, the rental income is normally regarded as ordinary income and therefore part of your assessable income.

However, as highlighted in paragraph 17 of IT 2167, where there is a non-commercial arrangement and where a payment is received for board only or for lodging only or for both then the income is considered to be a domestic arrangement not giving rise to assessable income. It follows that the question of income tax deductions for losses and outgoings does not arise.

When using your home for homestay students, the essential question is whether the arrangements are consistent with normal commercial practices. If an amount received from a homestay student is not a commercial arrangement, then the payments for board are not regarded as assessable income.

In determining whether a particular receipt is income, consideration needs to be given as to whether the intention of providing the accommodation is to make a profit or a genuine commercial relationship exists between the parties. Where these factors exist it can be argued that such receipts are in the character of assessable income (FC of T v Kowal 84 ATC 4001). However, the receipts will not be considered assessable if they merely defray the cost in looking after the students (FC of T v Groser 82 ATC 4478). In such cases, there is generally no gain or benefit to the home owner. Therefore, it is not reasonably arguable that they had a profit making intention.

In your case, you wish to have homestay students staying with you. You will receive an amount which will cover their accommodation and utility expenses. The amount is based on the homestay organisation rate. This rate is regarded as a contribution to the cost of accommodating the students in your home.

It is considered that the payments and arrangement are not commercial in nature. Therefore, the payments are not considered to be assessable income. It follows that no deduction is allowed for any of the associated costs.