Private ruling: Income from boarders
Published: August 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Do the payments you receive with regard to having university students boarding in a detached fully self-contained unit on your property fall under a domestic arrangement and are therefore not included in your assessable income? | A1: No.

Relevant facts and circumstances: You have a fully self-contained unit on your property, separate from your main residence in which you live. The unit has a different lock system and separate access from your house. The only shared or common area is the backyard, and access to your house is not permitted. You currently have students living in the unit, who will soon vacate the premises. Following this vacancy, you plan to look for replacement tenants. This is not through a homestay arrangement that has been organised by the university or Department of Education. You currently charge a fixed amount per week to cover costs for electricity, water, gas, internet, general maintenance and use of the self-contained unit, and tenancy insurance (which you intend to take out in the near future). You may charge a higher rate with future tenants; however you currently charge this amount because of the small size of the unit. All bills and expenses are in your name and are your responsibility. The students/future tenants do not pay any amounts additional to the weekly amount. You provide breakfast for the students; however they will eat the majority of their other meals at university and will be responsible for any other meals. Your main reason for this arrangement is to earn extra income. You are unsure how much profit (if any) you will make, given the minimal amount of rent you charge - which is relevant to the size of the unit.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 6-5

Reasons for decision: Summary: 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 13 ATC 445; (1982) 65 FLR 121; 82 ATC 4478). Taxation Ruling IT 2167 states that ordinarily, where a taxpayer lets others use his/her property, whether wholly or in part, whether at arms length or otherwise, the amount received in return is assessable income. Paragraph 18 of IT 2167 states that where the owner of a residence permits persons to share the residence on the basis that all occupants, including the owner, bear an appropriate proportion of the household costs actually incurred, such as food and electricity, these arrangements are not considered to confer any benefit on the owner and are not considered to be assessable income. Paragraph 19 of IT 2167, on the other hand, states that if the owner were not party to the sharing arrangements or if the occupants made a fixed contribution to the owner for household costs, there would be a presumption that there payments made by the occupants contained an element of reward to the owner for the occupancy of the residence. Your circumstances bear resemblance to the rental arrangement described in paragraph 19, rather than the domestic arrangement as per paragraph 18. In your case, you charge a fixed weekly amount, which allows the occupants access to the self-contained unit and a shared backyard. There are no additional costs involved for the occupants. This amount will contribute to the maintenance and running costs of the self-contained unit, which you are responsible for paying, as well as the additional provision of breakfast. You entered into this arrangement with the intention to make income, albeit a small amount once all overhead running costs have been taken in to account. Given your intention, and the fact the occupants make a fixed contribution to you, the payments contain an element of reward to yourself for the use of your flat. Further, your self-contained unit has separate access from your main residence and they are not permitted access to any areas, apart from the shared backyard area and the unit. You intend to take out tenancy insurance. This is indicative of a rental situation, rather than a domestic arrangement. It is considered that your situation will fall within the category of 'an arms length letting of an identified part of residence'. Accordingly, the arrangement you described is of a rental nature, rather than domestic. Therefore, the amounts received by you are assessable income under section 6-5 of ITAA 1997.