Private ruling: Rental income
Published: October 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the full rent in advance payment assessable in the 2013-14 financial year? | A1: No. | Q2: Is the portion of rent in advance that relates to the rent up to 30 June 2014 assessable in the 2013-14 financial year? | A2: Yes.


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

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Rent is regarded as ordinary assessable income. You refer to the decision of the Full High Court in Arthur Murray (NSW) Pty Ltd v FC of T (1965) 114 CLR 314; 14 ATD 98 ( Arthur Murray's case ) which, subject to certain qualifications, has been accepted and applied by the Commissioner. Arthur Murray Pty Ltd carried on a business of giving dancing lessons and offered lifetime contracts. The company claimed that the fees received in advance became assessable when earned by the giving of the lessons and not when received. The Court held that the fees received were not income while the possibility remained that the whole fee, or a portion of it, would have to be repaid. Although you are not carrying on a business, it is considered that the decision in Arthur Murray's case is relevant in your specific circumstances. Therefore the payment that relates to rent up to 30 June 2014 is assessable in the 2013-14 financial year. The remainder is assessable in the 2014-15 financial year.

Relevant facts: The arrangement that is the subject of the Ruling is described below. This description is based on the application for private ruling including your residential tenancy agreement. This document forms part of and is to be read with this description. | You have an investment property. | The current tenant paid rent in advance several months prior to June 2014. | Your rental property is managed through a real estate agent. | There is a current lease in place. A clause within the lease requires you to refund the relevant amount of rent (less a penalty) if the tenant moves out before the end of the rental lease. | You are not carrying on a business of renting properties.