Private ruling: Rental Property - Domestic Arrangement
Date of advice: 25 February 2026
Published: 20 April 2026
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is the income you receive from your parents for residing at your other property assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Based on the information you have provided

Relevant facts and circumstances: You purchased a property in April 20YY. The property was acquired to be your main residence, and you moved in on acquisition. You acquired the property in equal legal ownership interest. Your parents reside in the property now and there is no formal arrangement between the parties. The property is managed privately. In July 20YY, you purchased a new house and moved to another house as soon as the settlement occurred. You moved out and the parents moved in to reside in the property continuously as long as they want to live in the property. The parents pay $XX per week to the taxpayers to help with the mortgage and other expenses The payments are directly paid into the home loan account. The $XX per week that is paid is less than the market value.

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

Reasons for decision: Summary: Section 6-5 of the ITAA 1997 provides that assessable income of an Australian resident taxpayer includes the ordinary income it derived directly or indirectly from all sources during the income year. Ordinary income does include income received by a taxpayer as a result of renting out a rental property. Subsection 6-5(1) of ITAA 1997 defines ' assessable income ' as follows: "Your assessable income includes income according to ordinary concepts, which is called ordinary income." The legislation does not provide any specific guidance on what is meant by " income according to ordinary concepts ". The Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 4) of 1996 (Cth) states that it has been left to the courts to develop principles for determining what is " ordinary income ". Case law has identified various factors which may be relevant in determining whether an amount is income according to ordinary concepts. These including whether the amount has the characteristics of periodicity, recurrence or regularity. In FCT v Kowal (1983); 79 FLR 75; 15 ATR 125; 84 ATC 4001 ( Kowal's case), the taxpayer was renting to a relative at below market rate. The Court found that the taxpayer had two objectives in mind. One was to provide his relative with a good home at moderate cost. The other was to earn assessable income. The Court determined that the rent was assessable income. In your case, you have used your home to provide accommodation to your parents. You have the payments that they regularly make into the home loan account. These payments that are below market value for renting a similar property, while the intent may be to provide your parents with a good home at a reasonable price, the other intent is to earn assessable income from your investment. Therefore, the payments you receive from your parents will be included in your assessable income. | Detailed Reasoning - Domestic Arrangement: Formal, and domestic arrangements such as where you rent out to family and friends at less than commercial (or market) rates is required to be included and declared as income by the taxpayer. Where there is a non-commercial or domestic arrangement, amounts paid for board or lodging do not give rise to the derivation of assessable income ( FC of T v. Groser 82 ATC 4478; 13 ATR 445). That is for a room and board of a portion of a residence. Domestic arrangement specific with family members in the form of board and lodging is of a domestic nature. There are different types of domestic arrangements, some require the declaration of the income while others do not. Rental income is income payment received for rent including payments from family members. The Rental Property Guide 2025 outlines under Non-commercial rental that: "If you let a property, or part of a property, at less than normal commercial rates, there may be a limit on the deductions you can claim. For example, your deductions may be limited to the amount of rent you receive for any period you rent your property for less than normal commercial rates." The guide further provides an example 14 which outlines the treatment of the private use by owner and when the property is rented to relatives. This is paraphrased below: Kelly and Dean bought a holiday home, and it is advertised through a real estate agent for rent. The market rate was $840 per week but this was rented out to their friend at $200 per week. Kelly and Dean receive income and incurred expenses, but they are only allowed to claim the expenses based on the proportion of the received income. This is because the property was rented at less than the market rate and the expenses are more than the expenses incurred. In the Kowal case, for example, the Court found that the taxpayer had two purposes or objects in mind in acquiring the relevant property. One was to provide his mother with a good home at moderate cost. The other was to earn assessable income. The Court further found that the second purpose or object was the predominant one and, in the result, allowed income deductions for 80% of the losses and outgoings falling within sub-sections 51(1) and 67(1). In the Groser case, on the other hand, the Court expressed the view that, if the weekly rental had been assessable income, it would have allowed no more than $104 by way of deduction under sub-section 51(1) - the reason for this being that private or domestic purposes for the expenditure predominated over the purpose of producing assessable income. You do not have an income producing intention based on the history for the property. As has been said earlier, decisions in these cases will ultimately depend upon the facts of each case. As a matter of experience, it is unlikely that there will be sufficient information provided in return forms to enable a final decision to be made. In these circumstances, and as a working rule, income tax deductions for losses and outgoings incurred in connection with the rented property may be allowed up to the amount of rent received. Whether any additional deduction is to be allowed will depend upon the nature of any further information provided by the taxpayer. In your case, the whole house is used by your parents, and they are making payments into the loan account.