Private ruling: Rental – income and deductions
Date of advice: 25 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are amounts received by you for having boarders in your granny flat included in your assessable income? | A1: No

Relevant facts and circumstances: You have a granny flat on the same land as your main residence. On two separate occasions you had friends staying in the granny flat. The granny flat was not advertised for rent, there were no formal lease agreements in place and there were no defined time periods that your friends would be staying in the granny flat. Your friends paid you an amount on a weekly basis to stay in the granny flat. The money paid to you by your friends was below market value for rental prices in your area and was considered to be a contribution to the costs of power, water and internet. You allowed your friends to stay in the granny flat for undefined periods of time as they were in the process of finding permanent living arrangements. You have claimed no deductions for any expenses you have incurred on the property.

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

Reasons for decision: Summary: 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 a taxpayer's assessable income. However, amounts received on a non-commercial or domestic basis do not give rise to the derivation of assessable income (FC of T v. Groser 13 ATC 445; (1982) 65 FLR 121; 82 ATC 4478). Taxation Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases considers the consequences of different rental income producing arrangements. Paragraph 18 of IT 2167 states that: Situations arise where the owner of a residence permits persons to share the residence on the 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 on the owner. There is no assessable income and the question of allowable deductions does not arise. In your case, you received an amount from your friends on a weekly basis in order for them to stay in the granny flat. The amount received was below market value and its intention was to cover costs of accommodation such as electricity, water and internet. There was no formal lease agreement in place and there was no defined period of time your friends would be staying in the granny flat. Due to these factors the amounts you received for letting friends stay in your granny flat are considered to be non-commercial and private and domestic in nature. Therefore, they are not included in your assessable income under section 6-5 of the ITAA 1997.

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