Edited version of your written advice

Authorisation Number: 1013098640935

Date of advice: 26 September 2016

Ruling

Subject: Rental income

Question

Is your rental income assessable?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 2016

The scheme commenced on

1 July 2015

Relevant facts

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You own a home in State A.

An emergency happened in State B so that you had to relocate to State B with your family.

You rented your State A property out for less than market value.

You intend to return to State A once the matter is rectified.

You are currently renting a property in State B.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment 1997 Section 8-1.

Reasons for decision

According to subsection 6-5(1) of the ITAA 1997 your assessable income includes the income you receive according to ordinary concepts, which is called ordinary income.

The ITAA 1997 does not provide any specific guidance on what is meant by 'ordinary concepts'. Therefore, it has been left to the courts to determine whether an amount is considered to be income according to ordinary concepts. The following factors are relevant in determining whether an amount received is ordinary income:

Whether the amount has the characteristics of periodicity, recurrence or regularity;

Whether it is convertible into money or money's worth;

Whether it is associated with business activities or services rendered, as distinct from the mere sale of property; and

Whether it is solicited, as distinct from a windfall.

Typical examples of items that are considered to be ordinary income include salaries, wages, proceeds from carrying on a business, rent, interest and dividends. Typical examples of items that are not considered to be ordinary income include lottery prizes, proceeds from a hobby and gifts.

Rental income deductions

Section 8-1 of the ITAA 1997 provides that a deduction is allowable for expenses incurred in gaining or producing assessable income, provided those expenses are not capital, private or domestic in nature.

Expenses incurred relating to a rental property are deductible under section 8-1 of the ITAA 1997, if the property is rented or available for rent in the income year in which you claim the deduction.

Where your property is let out at less than market rates, your entitlement to claim expenses is also apportioned on a percentage of the market rate. An example is: the market value rent is $500 per week but you only charge $400, then you would only be able to claim four fifths of the expenses.

IT2167 gives a more detailed explanation of this calculation. This is available to be viewed on ato.gov.au.

Paying rent in State B

Personal rental payments on a property used exclusively as your principal residence are private expenses. The Act does not give the Commissioner any discretion in offsetting these payments against rental income you earn from other sources.

In Conclusion

You cannot offset your rental income from State A against your rental payment in State B.

However you are entitled to a deduction for expenses directly relating to your State A property for example, interest on mortgage, council rates and repairs.

For more information see the Rental Properties Guide and IT2167 at ato.gov.au.