Private ruling: rental deductions
Published: February 2013
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Questions and Answers | Are you required to declare income in your tax return for a property that is not generating income? | No. | Are you entitled to claim deductions in relation to a property that is not generating income? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have a number of properties which are occupied by family members. No income is received by you for these properties. You claim no deductions in relation to the properties.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2). | Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident for taxation purposes includes ordinary income derived directly or indirectly from all sources. Generally, where a taxpayer rents out their property, whether wholly or in part, the amount received as rent is considered to be ordinary income. Taxation Ruling IT 2167 provides guidelines in determining the authenticity or otherwise of rental arrangements, the assess ability of receipts derived from various rental arrangements and the deductibility of expenses incurred in connection with a property where the arrangement is not one that is affected at arms length. The essential question in determining the assessability of monies received when a home is occupied by the owner's family members/relatives is if the arrangement is consistent with normal commercial practices in the area. If it is, the owner of the property would be treated no differently for income tax purposes from any other owner in a comparable arms length situation. However where a property is occupied by family members/relatives of the owner and the consideration for such occupancy is at less than commercial rent, it is necessary to examine the purposes of the taxpayer in letting it out to relatives. In Federal Commissioner of Taxation v. Groser 82 ATC 4478; 13 ATR 445, the taxpayer permitted his invalid brother to live in a house which he owned. The taxpayer arranged to receive his brother's invalid pension so that he could use the money to provide for his brother's maintenance. It was arranged that $2 per week would be deducted for rent of the taxpayer's house. The Court held that the weekly amounts of $2 were not assessable income. They were a contribution of the funds out of which the taxpayer proposed to maintain his brother. In your case your family members do not pay you rent for the properties. As no rent is received no income can be declared in your tax return. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. To be deductible under this section an expense must have the essential character of an expense incurred in gaining or producing assessable income or, in other words, of an income-producing expense. As the arrangement is private in nature and no income is being generated from the properties, no deductions are allowable in respect of losses or outgoings incurred in connection with the properties.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.