Private ruling: Rental income
Published: April 2013
Ruling period: Year ended 30 June 2009 Year ended 30 June 2010
Date scheme commenced: 1 July 2008

Ruling: Q1: Is the rental income received by your real estate agent assessable in the financial year in which it is received by your real estate agent even though it is not paid to you until the next financial year? | A1: Yes.

Relevant facts and circumstances: You own a rental property which is managed by a real estate agent. The tenant made a rent payment to the real estate agent for a period which fell in both the 2008-09 and 2009-10 financial years. Both the Tenant Trust Ledger and the Owner Trust Ledger show the payment date as being in the 2009-10 financial year. The real estate agent included the payment in the Annual Report for the 2008-09 financial year. They have not supplied you with any documentation to show the payment was paid to them prior to 1 July 2009.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 6-5(4)

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that the assessable income of an Australian resident includes income derived from all sources whether in or out of Australia, during the income year. Generally, rental income is regarded as income according to ordinary concepts and should be included in the assessable income of the owner of a rental property. Taxation Ruling TR 98/1 provides guidelines for determining when income is derived for the purposes of section 6-5 of the ITAA 1997. The ruling states the 'receipts' method is appropriate to determine when investment income is derived under an investor. Under the receipts method, income is derived when it is received. In most cases income, including salary and wages, interest, dividends and rent are derived when the amount is actually received. However, it is not always necessary that the money or property representing income actually be in your possession before it is considered to be received. This concept, known as constructive receipt, is discussed in subsection 6-5(4) of the ITAA 1997. In brief, income reinvested, accumulated, capitalised or otherwise dealt with on your behalf, or as you direct, is considered to be constructively received and therefore part of your assessable income for that particular financial year. In your case, all documentation you hold indicates the rent payment was made during the 2009-10 financial year. Therefore, this gross amount of rent should be included in your assessable income for the year ended 30 June 2010 even though part of the payment related to an earlier income year.