Private ruling: Rental deductions
Date of advice: 22 May 2024
Published: 1 July 2024
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction of $X against the rental income of $X you derive from renting a room out in the house you rent? | A1: No.

Relevant facts and circumstances: You are on a pension. You rent a residential property. You are the only person on the lease. You are renting out the master bedroom to a third party under a lodger licence agreement (and not as a sub-residential rental agreement). You receive a fortnightly payment for the leasing of the room. You have consent from your landlord to rent out the room. Your gross income expected (in addition to your pension) will be a certain amount per fortnight. The expenses you wish to declare will be the same amount per fortnight, bringing a net rental income of $0 per week. You will have the smaller bedroom in the house for yourself.

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

Reasons for decision: Summary: You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital or private in nature (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)). To be entitled to claim a deduction, you must have incurred an expense that directly relates to earning income. The rent you are obligated to pay under the lease agreement is not an expense incurred in gaining or producing your assessable income, as you must pay the rent to the property owner regardless of whether you rent out a room in the house to another person or not. By paying the agreed amount for the property you rent under the lease agreement you are securing housing for yourself. The outgoing is of a private nature. In addition, and based on your circumstances, the amount of rent you pay the landlord would not be an allowable deduction under any other taxation laws. Whilst we acknowledge your situation and the associated difficulties you are facing, the Commissioner has no discretion to apply the law any differently in your case. The Commissioner has no discretion under the law to allow you to claim a deduction of $X per fortnight against the rental income you receive from the lodger.