Private ruling: CGT - main residence exemption
Published: December 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the amount received from the family you have living with you considered assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Will you lose your eligibility to the main residence exemption in relation to Capital Gains Tax (CGT) as a result of the amount received from the family you have living with you? | A2: No

Relevant facts and circumstances: You live in a dwelling and it is considered your main residence. You were introduced to a family by friends, after you expressed your willingness and ability to assist a family with a place to live. You allowed the family to live in the downstairs area of your house, which has been set up to be self-contained. The family moved into your home and continue to live with you. You and the family agreed on the amount of $XXX per week. The factors taken into account when determining this amount was what the family could afford to pay and the amount of additional expenses incurred by having the additional people living in the property. The $XXX per week covers the following costs: • Gas • Electricity • Water • Insurance • Maintenance and repairs • The use and replacement of household appliances, such as the washing machine, stove, heaters etc. The median market rental for your suburb is $XXX per week (www.realestate.com.au) Your intention when offering accommodation to the family was not to earn income, rather it was to assist a family in need.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subdivision 118-B | Income Tax Assessment Act 1997 section 118-100

Reasons for decision: Summary: Section 6-5 of the 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 18 of IT 2167 states that: Situations arise where the owner of a residence permits persons to share the residence on that 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 to the owner. There is no assessable income and the question of allowable deductions does not arise. In your case, the amount received under the arrangement with the family is to cover the expenses of accommodating this family in your home. The amount of the payment has been set with regard to the normal costs of utilities and overheads. This amount is not considered a true commercial rate as it is below the median market rental amount and there is no built in benefit component to you for the use of parts of your house. While there might be some surplus on occasions, these amounts will generally be small in regard to the expenditure incurred. It is considered the payments you receive from the family are in relation to a non-commercial or domestic arrangement and are therefore not assessable income under section 6-5 of the ITAA 1997. Subdivision 118-B of the ITAA 1997 covers the main residence exemption in relation to capital gains and losses. Section 118-100 of the ITAA 1997 states: You can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence. However, this exemption may not apply in full if: • It was your main residence during part only of your ownership period; or • It was used for the purpose of producing assessable income. In your case, the payments you receive from the refugee family have been considered not assessable income and therefore your property is not being used for the purpose of producing assessable income. As such you will not lose your entitlement to the main residence exemption as a result of this arrangement.