Private ruling: Homestay payments
Date of advice: 15 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are the payments you received under homestay arrangements tax free? | A1: Yes.

Relevant facts and circumstances: In the 2014 financial year you received payments with regards to homestay arrangements. For most of the year you boarded only one or two students at a time. There were some weeks where you boarded three or four students. You considered the students as part of your family. The students were encouraged to help with housework as well as participate in family activities. The rates, terms and conditions of the homestay arrangements were set out by homestay organisations governed by the Department of Education. You were advised by your previous accountant that you made a profit on homestay income in excess of what would be considered reasonable cost reimbursement. As a result, homestay income and expenses were included in your tax return.

Relevant legislative provisions: Income Tax Assessment Act 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 82 ATC 4478; 13 ATR 445). Taxation Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases , 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. 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. These rates are not regarded as true commercial rates 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. Therefore, the amounts received by you in relation to the homestay arrangements are not considered assessable income under section 6-5 of the ITAA 1997.