Edited version of private advice

Authorisation Number: 1052327390287

Date of advice: 11 November 2024

Ruling

Subject: Rental income

Question

Are 100% of the amounts you receive for renting a room out in your house assessable income?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2025

The scheme commenced on:

1 July 2024

Relevant facts and circumstances

You have hosted individuals in your home for a number of months.

You own the property.

You were living in the house full-time prior to your marriage.

You now spend a few nights a week at the house where you host individuals.

You live with your spouse in your spouse's house the remaining nights a week.

You advertise your rooms for rent accommodation listings.

The listing states:

•         Accommodation Listings is an information exchange platform only and does not facilitate any process of the rental agreement between the accommodation provider and students.

•         Employees of the platform are not permitted to register as a provider on the Accommodation Listings platform.

•         Individuals have not been interviewed or screened.

•         Property providers should make their own suitability checks regarding any prospective tenant/boarder.

•         Prospective tenants should inspect properties and meet the other occupants before any agreement is made or money exchanged.

•         Platform use is exclusively for individuals only to find housing.

•         All providers and students must agree to abide by the relevant legislation and guidance, depending on the agreement (refer to Consumer Protection a Lessor's Guide resource for details of your responsibilities and Consumer Protection Distinguishing between tenants, boarders and lodgers):

1.    Residential Tenancy Act for any arrangement where the student is a "tenant".

2.    Australian Consumer Law for any arrangement where the student is a "boarder or lodger

•         A written agreement should be drafted and signed by both parties.

•         The Bond should be lodged with the Bonds Administrator.

•         If you are not the owner of the property, you should check with the property owner or property manager that you are permitted to provide student accommodation and what restrictions may apply.

•         Any short-term (less than 3 months) accommodation providers should review the Short-Term Rental Accommodation Act 2024. You may need to contact the Short-Term Rental Accommodation Register to verify if you need to register as a provider. This may be relevant to accommodation providers renting a room to students who are completing their placement in a regional location.

•         Provide clear guidelines for both parties regarding the house rules and their access to the property (note that all occupants should at least have access to a secure bedroom, toilet, bathroom and common areas such as the kitchen and laundry.) Consider creating a house rules and job chart to ensure a harmonious and equitable relationship.

•         Accommodation opportunities that offer a "rent offset" model (such as no rent in exchange for domestic services) are not permitted.

•         The platform reserves the right to remove any listing and restrict future listings, if the provider is found to be non-compliant with these terms at any time.

•         Any threatening or aggressive behaviour by either party should not be tolerated and should be reported to the Police by calling 000 if the matter is urgent or 131 444 if the matter is not urgent.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

The term 'homestay' is used to describe accommodation provided to local and overseas students studying or training at Australian universities or other educational institutions.

Under a homestay arrangement, students live with the host family in their home. They are usually provided with their own room and have access to other household facilities. Main meals are provided by the host family. They may also have their laundry and ironing done and provided with occasional transport. They may be required to help out with household chores and keep their room clean.

Housing officers at the educational institution determine how much is paid to the host family. The payments are designed to cover the costs to the host family of supplying food, utilities, and other minor expenses of the student.

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes all ordinary income derived directly or indirectly from all sources.

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 do not give rise to the derivation of assessable income (FC of T v. Groser 82 ATC 4478; 13 ATR 445).

Taxation Ruling IT 2167 considers the consequences of different rental income producing situations. Paragraph 9 of IT 2167 states that:

9. A variety of arrangements may occur in situations of this nature. The rent payable may cover variable or running costs such as electricity, heating, etc. or the arrangements may require the tenant to pay, in addition to rent, a separate amount towards variable or running costs. The heading would also cover situations where board and lodging is provided.

Paragraph 12 goes on to say:

The approach to be followed in cases arising under this heading has been framed on the basis that the rent charged by the owner represents a normal commercial rent.

The agreement you have with the student is one of a commercial nature.

The individual is required to pay a bond and the individual is required to give a couple of weeks' notice when vacating the room.

The platform enables you to advertise your rooms for rent.

The platform does not involve themselves in the rental arrangements.

The platform uses the term "rent" consistently throughout the platform.

The agreement is a commercial arrangement between you and the tenant who just happens to be a student.

The amounts received by you are made in relation to a commercial arrangement and are therefore assessable income under section 6-5 of the ITAA 1997.