Edited version of your written advice

Authorisation Number: 5010047929479

Date of advice: 12 January 2018

Ruling

Subject: Assessable income

Question

Would amounts received when boarding three students under a homestay arrangement be assessable under 6-5 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Period ending XX June 20XX

Period ending XX June 20XX

Period ending XX June 20XX

Period ending XX June 20XX

The scheme commences on:

XX February 20XX

Relevant facts and circumstances

You intend to enter into a homestay arrangement for three students.

Your home is in a suburb in City A

Your home is an eight bedroom three bathroom property.

Your homestay arrangement is through the National Homestay Network

You are paid by the Education Department at a rate that is not considered commercial.

Your payment can cover: placement fee, Airport pick-up, and meals x 3 per day 7 days a week, private room, internet, telephone, cleaning as well as an amount for maintenance on the home.

The rate can alter depending on age of the student.

You intend to care for three students for the Academic year (43 weeks).

You are paid monthly.

You estimate the annual rate for each student will be $12750.00

You estimate that to be a total of $38250.00

You estimate the total annual expense for the students will be $27500.00

You will receive an amount of $10750.00 over your direct expenses for the three students.

AHN website rates for 2018 fees for City A for over 18s vary between $200.00 per week to $320.00 per week.

AHN website rates for 2018 fees for City A under 18s vary between $310.00 to $340.00 per week.

Variations are based on Private room, Shared room, and the number of meals provided

Relevant legislative provisions

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)

Reasons for decision

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 does 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 18 of IT 2167 states that:

'Situations arise where the owner of a residence permits persons to share the residence on the basis that all the occupants, including the owner, bear an appropriate proportion of the costs actually incurred on food, electricity etc. Arrangements of this nature are not considered to confer any benefit on the owner. There is no assessable income and the question of allowable deductions does not arise.'

Further:

ATO ID 2001/381 states in the reason for decision:

‘Amounts received under the homestay arrangement are determined by the educational institution to cover the expenses of accommodating the student in the home. The amount of the payment is set with regard to the normal cost of supplying food, utilities and overheads for the student. The rate is not regarded as a true commercial rate and there is no built in benefit component to the taxpayer for the use of parts of the house. While there might be some surplus on occasions to the home owner, these amounts will generally be small having regard to the expenditure incurred.’

The amount being paid by the students - while appropriate in that it is dictated by the educational institution's housing officers - is not really appropriate when measured against the amount being actually used to pay for the household expenses of each student.

In this case there is a substantial benefit being conferred to you, the owner of the property – on your estimate of expenses you are deriving a significant amount annually from the activity.

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

The surplus you have estimated cannot be regarded as small in 'regard to the expenditure incurred.'

The amounts set to be paid by the students - although not directly reflecting market rates for food and utilities - are provided as an appropriate amount to cover these expenses.

So where there is a substantial amount of surplus left over it could be concluded that the householder is making an attempt to reduce the costs of supplying food, utilities and overheads for the students which demonstrates an intent to derive profit from the activity - and thus deem the income assessable under 6-5 of the ITAA 1997.

On the estimated figures you have supplied and the amount you consider will be in excess of expenditure, the surplus cannot be considered negligible and should be declared as income by you in your income tax return.