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Edited version of your written advice
Authorisation Number: 1013141326666
Date of advice: 21 December 2016
Ruling
Subject: Rental property income and expenses
Questions and answers
1. Are you assessable on the payments you receive from your friend who lives in a property you own?
No.
2. Are you entitled to claim deductions for losses or outgoings in relation to the property?
No.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
You own a property.
You are not able to live in the property as you live permanently in a care facility.
You have a friend who lives in the property.
Your friend takes care of the property and carries out work on the property when needed.
Your friend also visits you in the care facility taking you to appointments when required.
Your friend pays you $xxx per week which is less than the market rent in your area.
Your friend lives in the property on their own.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident for taxation purposes includes ordinary income derived directly or indirectly from all sources.
Generally, where a taxpayer rents out their property, whether wholly or in part, the amount received as rent is considered to be ordinary income.
Taxation Ruling IT 2167 provides guidelines in determining the authenticity or otherwise of rental arrangements, the assess ability of receipts derived from various rental arrangements and the deductibility of expenses incurred in connection with a property where the arrangement is not one that is affected at arm's length.
The essential question in determining the assessability of monies received when a home is occupied by the owner's family members/relatives is if the arrangement is consistent with normal commercial practices in the area. If it is, the owner of the property would be treated no differently for income tax purposes from any other owner in a comparable arm's length situation.
However where a property is occupied by family members/relatives of the owner and the consideration for such occupancy is at less than commercial rent, it is necessary to examine the purposes of the taxpayer in letting it out to relatives.
In Federal Commissioner of Taxation v. Groser 82 ATC 4478; 13 ATR 445, the taxpayer permitted his invalid brother to live in a house which he owned. The taxpayer arranged to receive his brother's invalid pension so that he could use the money to provide for his brother's maintenance. It was arranged that $2 per week would be deducted for rent of the taxpayer's house. The Court held that the weekly amounts of $2 were not assessable income. They were a contribution of the funds out of which the taxpayer proposed to maintain his brother.
The payments you receive from your friend are not considered to be rental income since it is a non-arm's length transaction and is not at a commercial rate of rent.
Therefore, the payments received from your friend are not assessable income. In addition, as the arrangement is private in nature, no deductions are allowable in respect of losses or outgoings incurred in connection with the property.