Private ruling: Rental income
Published: July 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the rental income, that you have not received, included as assessable income? | A1: No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. As a gift your relation transferred an overseas property to you. The property has been rented for several years on a commercial basis. After the transfer of the property to you, you altered the payment arrangements on the tenancy agreement and requested the monthly rental payments to be paid to your solicitor. Since the transfer neither your solicitor or you or your relation have received any rent. Prior to the transfer, the tenant has occasionally given some of the rental income to your sibling overseas. Your sibling would then pay the rates on the property. Your sibling is disputing the transfer of the property. The matter has been referred to your lawyer overseas. Your lawyers have received a sealed judgement against the tenant for eviction and recovery of rental. You have not received any income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Rent is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997. If an amount would be ordinary income apart from the fact that you have not received it, it becomes assessable income as soon as it is applied or dealt with in any way on your behalf or as you direct (subsection 6-5(4) of the ITAA 1997). In your case, the rental income has not been applied or dealt with in any way on your behalf or as you directed. Therefore the rental income is not assessable under subsection 6-5(4) of the ITAA 1997. Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income. Paragraph 48 of TR 98/1 states that rent is generally assessable when received or applied at your direction. That is, rent is assessable on receipt even though it may relate to a past or future income period. In your case, you have not received any rental income since the acquisition of your rental property. You were entitled to receive rental income. However, you have not received any rent. As you did not receive any rental income, no rental income is included in your assessable income. Should you receive the rent in a later income year, then the rental income will be assessable in that year.