Private ruling: Assessable income - rental income
Date of advice: 24 February 2026
Published: 20 April 2026
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the payments you receive for renting out bedrooms in your house assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997? | A1: Yes.

Relevant facts and circumstances: You solely own the Property where you and your spouse (Person A) live. You have several spare bedrooms in your home. You are considering accommodating several students over 18 years of age in your home and have been researching and learning about homestay/student accommodation arrangements. You anticipate renting out each bedroom for a specified amount (the Payment) which has been calculated by: • dividing the annual costs for utilities and property expenses by the number of bedrooms to account for each bedroom for amounts attributable to mortgage, electricity, water, insurance, gas, council rates and internet and then • adding costs for each student for the following: ­ food staples calculated for a specified number of weeks per year, for items maintained on a weekly basis provided for the student's use ­ cleaning for weekly and monthly cleaning of the common areas, with students to clean their own rooms; ­ administration calculated cover preparation and liaison for setting up agreement, advertising, vetting candidates, setting up banking links, conducting site safety and induction. Each student will be provided with a bedroom with bedlinen, blankets, doonas, study space, basic food staples, bath towels, tea towels, and dish cloths The shared facilities at the Property will include a fully appointed kitchen, bathroom, laundry, courtyard garden and car parking. The students will launder their own linen, towels and personal items in the washing machine provided. You will not provide the students with any meals, and they will buy their own food and prepare their own meals. The rooms will be advertised on a web site, with your weekly rate being close to the average for comparable listings. An agreement (the Agreement) has been prepared which outlines the terms of the arrangement between you and Person A (the hosts) and the students (the guests) which includes the following information: • The Property has a separate structure located on it where you and Person A live, with several of the bedrooms in the house being available for the student arrangements. • Each student will have a private, furnished room with ceiling fan and dedicated study area, with the students sharing communal living areas and a bathroom. The laundry and kitchen facilities will be shared by the students and you and Person A. • Meals are not provided, with a fully equipped kitchen, stocked with a variety of basic staples being available the students. • Services and internet are included. • Linen and towels are provided, with laundering being the responsibility of the student. • Cleaning equipment is provided, with students having a responsibility to keep their areas clean and orderly. You and Person A will have access to the common areas for cleaning. Nothing will be touched in the bedrooms which are to be cleaned/maintained by the students. • The students are encouraged to be present during any cleaning/maintenance services being provided. However, the host will not enter your bedroom at any time unless you are present or have pre-approved this. • The guest agrees that fee payments will always be made a minimum of three weeks in advance. The guest will therefore pay 4 weeks fees prior to occupying the room and will receive a receipt for this with the applicable dates shown. • One week after the guest occupies the room, their next payment will be due. • At all times, the guest will ensure that their fees are paid a minimum of three weeks in advance. • All payments are to be made by automatic pre-scheduled electronic funds transfer and described as 'homestay fees' on the relevant bank statements so that both host and guest have an independent third party (bank statement) record of financial transactions between them. • The Payment, being a specified weekly amount over a specified period, will include accommodation, unlimited Wi-Fi internet access and all utilities (gas, electricity, water). • The guest may at any time give the host two weeks' notice of their intention to vacate the property. • The host may at any time give the guest four weeks' notice of requirement to vacate the property. • Once a guest gives the host two weeks' notice of intention to vacate, they agree that the host has permission during this two-week period to access their room to show new prospective guests the accommodation or to organise for any tradesman to enter the room to do maintenance or alterations. Under these circumstances, the host would always be present while the property is being inspected by the new prospective guest; and • The Agreement is for an intended occupancy of a minimum of six months. The utilities and expenses in relation to the Property are held in the following names: • Solely in your name - electricity, water, gas, rates and internet; and • Jointly with Person A - mortgage and home and contents insurance. During the ruling period you will use several bedrooms in the house located at the Property for student accommodation arrangements. You are not carrying on a business in relation to the student accommodation activities in your home.

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

Reasons for decision: Detailed Reasoning - Assessable income from non-business rental arrangements: 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). Draft Taxation Ruling TR 2025/D1 Income tax: rental property income and deductions for individuals who are not in business outlines the Commissioner's views in relation to how income and expenses from the rental of a property, or part of a property, should be treated for taxation purposes when the owner is not operating a rental business. The following paragraphs are provided in TR 2025/D1: 23. Amounts received in a shared household or family situation may be included in your assessable income to the extent that they relate to providing a lease or licence for the use of your property. Whether, and to what extent, an amount is for a lease or licence will be fact dependent. 54. Some arrangements in a shared household may still have the character of income. This includes situations where there are sub-leasing or licencing arrangements for the use of a property. 55. If one occupant leases or owns a property and sub-leases it to the other occupants, to the extent the amounts received from the other occupants relate to the right to occupy the property, they are income derived from that property and therefore assessable. To the extent that the amount is a contribution towards a shared household expense, it is not assessable income. ATO Interpretative Decision ATO ID 2001/381 Income Tax Payments received under a homestay arrangement outlines that amounts received by a taxpayer in relation to a student who is boarding with them under a homestay arrangement is not assessable under section 6-5 of the ITAA 1997. ATO ID 2001/381 states that: • The term 'homestay' is used to describe accommodation provided to local and overseas students studying or training at Australian universities or other educational institutions. • Under a homestay arrangement, students live with the host family in their home. They are usually provided with their own room and have access to other household facilities. Main meals are provided by the host family. They may also have their laundry and ironing done and are provided with occasional transport. They may be required to help out with household chores and keep their room clean. • Housing officers at the educational institution determine how much is paid to the host family. The payments are designed to cover the costs to the host family of supplying food, utilities, and other minor expenses of the student. In determining whether a particular receipt is income, consideration needs to be given as to whether the intention of providing the accommodation is to make a profit or a genuine commercial relationship exists between the parties. Where these factors exist, it can be argued that such receipts are in the character of assessable income ( FC of T v Kowal 84 ATC 4001). | Detailed Reasoning - Application to your situation: You will undertake the student accommodation activities during the ruling period. The weekly amount you receive from each student is being paid by the student for the use of your property which includes the use of specified areas of the property, cooking utensils and facilities, household equipment, furniture, fridge, electricity, water, internet access, and some food items. No meals are provided to the students. The activities you are undertaking are dissimilar from those involved with homestay arrangements because: • the students stay is not organised by the Department of Education • the students will not be boarding with you • main meals are not being provided for the students, • the amount the students are charged is not determined by the educational institution; and • the amount of the payment is not set by the educational institution with regard to the normal cost of supplying food, utilities and overheads for the student. Your activities will involve the use of bedrooms and specified parts of your property by unknown parties in an arms' length arrangement. Those arrangements are not in relation to providing access to the Property to a family member or friend and cannot therefore be viewed as a domestic arrangement, such as either a boarding or lodging arrangement. The Agreement outlines that: • the students have a right to occupy their respective room, being their right to use and enjoy that part of the property to the exclusion of you and/or Person A, with neither of you being able to access to the student's room unless they are present, or have given prior approval for you and/or Person A to enter their room, or as provided in the Agreement after they have tendered their notice that they wish to leave. The student's right to occupy allows them to a right to the quiet enjoyment of their room without you and/or Person A having access to it. This is similar to a lease arrangement but is dissimilar to a hotel arrangement where the occupiers do not have that right. • the students are required to pay a bond of four weeks rent prior to them occupying their respective room, with a payment being due one week after they have commenced occupying their room. The students will ensure that they maintain a minimum of three weeks rent in advance; and • the students can give two weeks' notice of their intention to vacate, and you can give the students four weeks' notice if you wish them to vacate the property. The Agreement for the student accommodation arrangement is a legally binding agreement which provides rights to the parties entering into the agreement. The Agreement is a commercial arrangement between you and the tenant who just happens to be a student. You will use an online web site to advertise for the students, being Flatmates.com.au. The weekly charge, being the Payment, is stated as being close to the average for comparable listings. The web site is not involved with the accommodation arrangements with the payments will be paid by the student via an automatic pre-scheduled electronic funds transfer. An estimate of your annual expenses in relation to the Property has been provided, with amounts for those annual expenses being apportioned to account for the three bedrooms at the Property. However, expenses should be apportioned on a reasonable basis, such as the floor-area solely occupied by the renter, with a reasonable area based on the renter's access to common areas of the property added to it. The amounts provided included running costs and also costs incurred by an owner of a property. Additionally, estimated amounts for food staples, cleaning and administration have been provided. It is reasonable to conclude that some of the activities in relation to cleaning and administration are in relation to activities that you and/or Person A personally undertake, and if so, they are not related to expenses you have personally incurred or paid but are calculated in relation to your personal/private activities/exertion. Based on the information provided with the ruling it is viewed that you are making a financial gain from the student accommodation arrangement, which is an arrangement of a commercial nature. The amounts are not viewed as being received in relation to a domestic or non-commercial arrangement. Therefore, the amounts you receive from the students in relation to the arrangement are assessable as ordinary income under section 6-5 of the ITAA 1997.