Private ruling: Rental income and expenses
Date of advice: 17 February 2016
Published: April 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 01 July 2015

Ruling: Q1: Are you assessable on rent payments you receive? | A1: Yes. | Q2: Are you entitled to claim a portion of rental costs incurred? | A2: Yes.

Relevant facts and circumstances: Your employer has asked if you could supply accommodation the occasional visiting professional. They generally stay for around a week. They have full use of their own bedroom and bathroom and shared access to general living areas of the house. They have access to anything they need in the kitchen, as well as full use of the laundry. There is no set arrangement in place, the frequency of the visits can vary greatly.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 and | Income Tax Assessment Act 1997 section 6-5.

Reasons for decision: Summary: According to subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) your assessable income includes the income you receive according to ordinary concepts, which is called ordinary income. Ordinarily, rent derived by the owner of property which is let to a tenant is income according to ordinary concepts and forms part of assessable income. Taxation Ruling IT 2167 follows that a taxpayer who derives assessable income from letting part of his private residence is in the same category is entitled to appropriate income tax deductions for rent, interest, insurance, etc. Section 8-1 of the 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 in nature, or relate to the earning of exempt income. Accordingly, to be able to claim expenses that relate to the property you must have held the property for the purpose of gaining or producing assessable income, and those expenses must not be of a private or domestic nature. If you use your home to produce assessable income you can claim deductions for the associated expenses. If only part of your home is used to earn rent, you're only entitled to claim deductions for the part of your expenses that relate to the assessable income. As a general guide, you should apportion expenses on a floor-area basis; that is, based on the area solely occupied by the tenant, together with a reasonable figure for their access to the general living areas. | Detailed Reasoning - Application to your circumstances: In your case, you rent out a room in your house. It is considered that the rent you receive is assessable income. The room is not advertised for general rental and is not available for anyone to rent. In this instance, it would therefore be considered unreasonable to apportion deductions based solely on floor area, as this would not accurately reflect your expenses. Therefore, we consider it would be more reasonable to only claim a portion of these expenses on the days the room was actually occupied and being used to produce assessable income.