Private ruling: Rental property income and deductions
Date of advice: 23 May 2019
Published: July 2019
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the payment you receive from your relative to stay at your house be included in your assessable income? | A1: Yes In general, a landlord is assessable on rental income received under section 6-5 of the Income Tax Assessment Act 1997 but may claim deductions for losses and outgoings incurred in gaining that income. We consider that the lease arrangement is on commercial terms and not a domestic arrangement. | Q2: Are you entitled to a deduction for the expenses such as mortgage interest, council rates and insurance relating to the property? | A2: Yes As the income you receive in relation to the property is assessable income, 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.

Relevant facts and circumstances: You purchased a house as an investment property at a price lower than the median for the type and location. The house is in poor condition, on a small block, and is liveable but needs extensive work. You have had a building and pest inspection report done which indicates the house condition and extent of repair work needed. The costs of repairs would total over $XXX if you were to have them done by tradespeople. Your relative is a carpenter, working in the construction industry, and currently living in the area close to their work. You have discussed the situation with your relative and they will move into the house and conduct repairs in their spare time, and will pay you rent. You have researched the median rental for similar houses in good condition in the area. You won't have a lease agreement with your relative, and you will manage the property rental yourself. You have not established a time frame for completion of the work, and you consider it may take a few years. You intend to keep the property as a rental property once the work is completed.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1