Private ruling: Rental income
Published: August 2014
Ruling period: Income year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the rent you will receive from co-owners of your property assessable income? | A1: Yes | Q2: Is your share of the expenses incurred in renting your property to co-owners deductible? | A2: Yes

Relevant facts and circumstances: You and another party purchased a residential property as your main residence in month/yyyy. You purchased the property as tenants in common with your ownership being x% and the other party jointly owning the remaining X%. You recently purchased another property as your main residence. The other party will continue to live in the original property and will be renting the original property from you. The rent will be at the market rate and there will be a standard rental agreement between you. You will be charging them X% of the rent and claiming X% of any rental deductions. Your property has been inspected by a real estate agent and they have provided advice on the market value of rent in the current property market.

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

Reasons for decision: Summary: Rental income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). 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 nature. Taxation Ruling IT 2167 discusses the Commissioners views on whether rent from a residential property is assessable income. There are situations where payments that are described as rent are not assessable income. This is particularly the case where the arrangement is not conducted at arm's length. In Case R16 84 ATC 179; 27 CTBR (NS) Case 67 the Board of Review held that one tenant in common can lease premises from their co-tenant in common (so as to have exclusive possession) and be liable to pay the amount reserved by the lease, and this amount is assessable income in the hands of the recipient. In such circumstances, the amount of rent being paid must be equal to that of a fully arms-length transaction. As you will rent the property to your co-owners for at least the market rental rate, the income derived from the rent received from your co-owner is assessable under section 6-5 of the ITAA 1997. As the rent received will be assessable income, expenses incurred by you in deriving that income from your co-owner such as your share of the rates will be deductible under section 8-1 of the ITAA 1997.