Private ruling: Rental deductions
Date of advice: 15 January 2026
Published: 9 March 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Can A on-charge B a market rental fee for their services in the Air BnB and the cost be deductible under paragraph 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: A, B, and C (You) purchased the property. The property is X acres at which you reside as tenants in common. B and C are married and jointly own XX% of the property. A is B's parent and has XX% ownership interest in the property. An Air BnB has been constructed on the property and commenced renting it in the 20YY financial year. B performs all the duties in relation to the Air BnB including: • YY hours of cleaning and washing • ZZ hours of marketing - weekly social media posts and advertising, articles and SEO to website • YY hours of food prep and shopping for accommodation • YY hours of gardening/mowing as the accommodation has a large garden. B created a detailed business plan prior to commencing this activity. Your business plan included a business strategy with the intention to use the market rates of the area to determine the on-charging costs. The market rates are based on or by reference to businesses providing the same services in the same town: • A Cleaning Services business charges $X p/h for short term Holiday cleaning • A Backyard Gardening Services business charges $X p/h for gardening maintenance • A Design and branding business charges $X p/h for social media marketing and website maintenance. B is a qualified graphic designer but has no other source of income other than from the Air BnB. There is no written agreement between A, B and C regarding the Air BNB on-charging services by B. However, since A is elderly and unable to attend to the tasks and C works full time, instead of paying a third party, B would perform the tasks and on-charge to A and C. If not, the rental income received by all landlords would be disproportionate to the effort. The built-on Air BNB was paid for by B and C. This structure Air BNB structure was done by completely renovating and rebuilding the main house. You turned the XX bedrooms into 1x kitchen and dining area, a bedroom and a new bathroom under one roof. You installed a new water tank. The guests have their own separate parking area and access. The Air BnB offers: • Breakfast daily • Option for daily cleaning and linen changes • Specialist packages which can include - fresh flowers, Champagne, chocolate, flower petals, photography, wine, fruit etc • Tour packages which we can organise for the guests. • Taxi services which can be organised for the guests. • Own website with frequent articles on the region to maximise our customer experience.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: Section 8-1 of the ITAA 1997 sets out the general rules for deductibility under the Act. The 2 positive limbs of the provision are contained in subsection 8-1(1) of the ITAA 1997, which provides that you can deductfrom your assessable income any loss or outgoing to the extent that: a) it is incurred in gaining or producing your assessable income, or b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. The 4 negative limbs of the provision are contained in subsection 8-1(2) of the ITAA 1997, which qualifies the application of the positive limbs by providing that you cannot deduct any loss or outgoing under section 8-1 to the extent that: a) it is a loss or outgoing of capital, or of a capital nature b) it is a loss or outgoing of a private or domestic nature c) it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income, or d) a provision of the Act prevents you from deducting it. If the expense cannot satisfy either of the positive limbs, the expense will not be deductible under the general deduction provisions. Therefore, the first step in determining if an expense is deductible under section 8-1 of the ITAA 1997 is to apply the positive limbs. The second step is to confirm the expense does not qualify as a negative limb cost which disallows the deduction. Subsection 8-1(2) of the ITAA 1997 provides undergeneral deductions that there must be a link between an outgoing and the production of assessable income. However, you cannot deduct a loss or outgoing under this section to the extent that: b) it is a loss or outgoing of a private or domestic nature. These private expenses are the negative limb of section 8-1 of the ITAA 1997. This is not a positive limb because the connection required for an expense to be deductible to the extent that they are incurred in earning assessable income link is broken. The phrase to the extent indicates that some expenses may need to be apportioned when they are partly used to earn income, and another is private. In determining whether an expense is deductible for income tax purposes it is necessary to establish a direct connection between holding a property to generate rental income and the expenses associated with holding that property. Where this connection has been established for a rental property, a landlord can deduct the expenses associated with holding that property to generate income. The meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tion NL v Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that: to come with the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income. The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income. Further case law in Brown v FC of T [2010] AATA 829 (Brown), the taxpayer 'employed' his wife to assist with his rental property and claimed deductions for her wages and superannuation contributions. In this case, a real estate agent was engaged to collect rent and deal with the tenants. The taxpayer's wife attended to maintenance requests and any other issues related to the property. She attended the property on a number of occasions to undertake maintenance, cleaning, and gardening and to supervise tradespersons. She collected the mail, paid the bills and kept records of the income and expenses relevant to the rental property. In this case, the Commissioner made the decision that the payments to the taxpayer's wife were of a private or domestic nature and disallowed the expenses as a deduction. The Administrative Appeals Tribunal upheld the Commissioner's decision. In your case, you wish B and C to pay A for the services provided on the Air BnB, you mentioned instead of paying a real estate agent to perform the tasks. Generally, the expenses paid to a real estate for services performed is deductible for the owners earning assessable income and they are not capital or private in nature. The expenses incurred are not sufficiently connected to the gaining or producing of your assessable income. The arrangement and associated expenses are considered to be inherently private or domestic in nature; therefore, you are not entitled to a deduction for expenses in relation to the payments made to your spouse under section 8-1 of the ITAA 1997. The expense of paying A by B and C for the on-charged amounts is considered a voluntary payment and is not directly incurred in the derivation of your rental income. The payments would be from one landlord to another. The same rental income is being derived by all three landlords. In determining whether a particular receipt is income in a rental property, consideration needs to be given as to whether the intention of providing the income. A taxpayer must incur the rental costs with a clear connection to the gained income. In determining the deductibility, consideration is made to the connection of income being earned under section 6-5 of the ITAA 1997 in allowing a deduction under section 8-1 of the ITAA 1997. | Detailed Reasoning - Nexus of income to the deduction: Section 6-5 of the ITAA 1997 provides that the assessable income includes rental income earned as a result of renting out your property, or part of your property. Court case decisions have determined that for an expense to be an allowable deduction, there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47). As outlined above the deductibility tests are applied - the first positive limb is qualified as they are incurred in gaining assessable income. However, the second negative limb denies the deduction of the other or remaining costs because there is no longer the assessable income to offset against. The nexus of the expense and the production of the assessable income is cut, the expenses above the rental income will be private in nature. You have advised that the intention of the application is to prevent the rental income received by all three landlords would be disproportionate to the effort. However, legislation refers to the legal ownership of the property. | Detailed Reasoning - Legal and equitable ownership: The Australian Taxation Office (ATO) considers that a person's legal interest in a property is determined by the legal title to the property in accordance with property law. A person's legal interest in a property is determined by the legal title to that property under the property law in the State or Territory in which the property is situated. A beneficial owner is defined as a person or entity who is beneficially entitled to the asset. Where it is asserted that the beneficial ownership and legal ownership of a property are not the same, there must be evidence to show that the legal owner holds the property in trust for the beneficial owner. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) contains guidance on the issues involved where the equitable interest in a property may not follow the legal title. As stated in TR 93/32 paragraphs 38 to 41, it has been said that if the equitable interest does not follow the legal title, there is some basis for the profit/loss to be distributed on the equitable and not the legal basis. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title. In your case, the documentation provided to support your ownership interest in the property is ownership of 50% by B and 50% is jointly owned by A and B. Therefore, the beneficial and legal ownership will be based on each legal ownership interest.