Private ruling: Rental income
Date of advice: 12 April 2016
Published: June 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 January 2015

Ruling: Q1: Is the income received from renting your home through entity A assessable? | A1: Yes.


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

Reasons for decision: Summary: Assessable income Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. It is acknowledged that you are not carrying on a business for taxation purposes. The size and scale of your activities does not constitute a business (Taxation Ruling TR 97/11). However in your case you are receiving income from renting out your property. Income Tax Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases provides guidelines about rental properties and discusses when rental income is regarded as assessable income. Where you rent out your property or part of your property, the rental income is normally regarded as ordinary income and therefore part of your assessable income. However, as highlighted in paragraph 17 of IT 2167, where there is a non-commercial arrangement and where a payment is received for board or lodging, then the income is considered to be a domestic arrangement not giving rise to assessable income. It follows that the question of income tax deductions for losses and outgoings does not arise. When using your home for letting, the essential question is whether the arrangements are consistent with normal commercial practices. In determining whether a particular receipt is income, consideration needs to be given as to whether the intention of providing the accommodation is to make a profit or a genuine commercial relationship exists between the parties. Where these factors exist it can be argued that such receipts are in the character of assessable income ( FC of T v Kowal 84 ATC 4001). However, the receipts will not be considered assessable if they merely defray the cost in looking after the boarders ( FC of T v Groser 82 ATC 4478). In such cases, there is generally no gain or benefit to the home owner. Therefore, it is not reasonably arguable that they had a profit making intention. In your case, you let your house infrequently. The tenants are not related to you. You receive an amount for the use of your home. You obtain the tenants through using entity A. Although you did not have a profit making intention when listing your home with entity A, it is considered that the payments and arrangement are commercial in nature. The arrangement is more than a private or domestic arrangement where your property is let to family or friends for a non-commercial rate. The amount charged covers the associated costs and provides money for your holiday. Although it is not your main intention to make a profit, the participation with entity A services gives rise to assessable rental income. That is, the payments you receive in relation to renting your home are considered to be assessable income.

Relevant facts: You live in your family home which is your principal place of residence. | You advertise your house on the entity A site. Entity A recommend a rental amount, however you set your own rate. | You only let it out infrequently and then only to approved applicants for a period of two weeks or more. | The reason for letting is to enable you to take holidays and to finance such holidays. | You do not intend to operate a business or to otherwise generate income. | During the current financial year you have only let out the house once for three weeks. | For the period of that letting you rented a holiday residence at place B which was largely financed by the proceeds of the holiday letting of your own home. | Your expenses include cleaning, linen, food and internet.