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Edited version of private advice
Authorisation Number: 1052135305516
Date of advice: 4 July 2023
Ruling
Subject: Income tax
Question
Are the payments you receive from your daughter regarding a domestic boarding arrangement assessable income?
Answer
No, the payments you receive are not considered assessable income under Section 6-5 of the Income Tax Assessment Act 1997 as it is not income under ordinary concepts. The boarding arrangement with your daughter is not an arm's length transaction and rent is not being charged at commercial rates.
This ruling applies for the following periods:
Financial year ended 30 June 2022
Financial year ended 30 June 2023
Financial year ending 30 June 2024
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
On XXX, you acquired a residential property. The property settled on XXXX.
The property is currently being used by your daughter and her two grandchildren as their abode
Your intention behind the purchase was to ensure you could help your daughter with her living arrangements. Your daughter is a single parent with two children, working full time, and to help alleviate some of her financial burdens, you acquired the property for her to live in. You wanted to provide some stability to her and your grandchildren. The main reason you purchased the property was to assist your daughter and granddaughters out of natural love.
Your financial advisor recommended that you acquire the property on interest only loan terms as this funding option would better assist with your cash flow. Your financial advisor also did not want to sell down your managed investments as this was not in-line with their financial plan for you and 'not the right timing'.
Your daughter pays the amount of $X per week which is to cover the loan's interest component (not principal) and property insurance. This amount was something your daughter could afford and it also provided you with a bit of financial relief. You also incur other property expenses including maintenance, repairs, council rates, water, etc
You did not enter into a formal tenancy agreement with your daughter as you felt that there was no reason to.
Based on recent advice from real estate agents, the market rates for similar rental properties in the area are between $X to $X per week.
It is your intention that in the event that you pass away, the property can be bequeathed to your daughter out of your deceased estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5