Do i pay tax on a family member paying for rent of a room in a house i live in

 Author: ZebN(Champion)Champion

12 July 2024

The answer to your question depends on what the $200 is paid for and whether the $200 per week is somewhat close the market value for renting the room. If the $200 is only for the room & use of other amenities, such as bathroom, kitchen & laundry; but does not include food & other living provisions; then the $200 will be taxable as rental income; particularly if the $200 somewhat is near market price for the rental.

You should also consider if the $200 includes electricity, water, gas, internet, etc. If this things are included in the $200 then the cost of the room itself will be $200 less the cost of these services.

If the $200 per week is assessable as income then you will also be able to claim related deductions; such as a portion of your insurance, rates & electricity costs.

Note: renting a room in this "commercial" way may also have capital gains tax implications, namely, the portion of your home rented for the proportion of time rented will cease to be your "main residence" therefore cease to have a capital gains tax exemption if your home is sold.

In summary, if the $200 is only for the room & amenities, it appears taxable. If the $200 is for what is commonly called "board", thus including food, it would not be taxable or deductible.

While complicated to read, detailed information is at this link: https://www.ato.gov.au/law/view/document?src=rs&pit=99991231235958&arc=false&start=11&pageSize=10&total=18&num=3&docid=ITR%2FIT2167%2FNAT%2FATO%2F00001&dc=false&stype=find&df=1143&df=1805&tm=phrase-basic-family%20arrangement

Payment by family members of an amount for "board and lodging"

17. Arrangements of this nature, whether the payment is said to be for board only or for lodging only or for both, are considered to be in the nature of domestic arrangements not giving rise to the derivation of assessable income by the recipient of the payments. It follows that the question of income tax deductions for losses and outgoings does not arise.

In FCT v Groser, 82 ATC 4478: 13 ATR 445, for example, the taxpayer permitted his invalid brother to live in a house which the taxpayer owned. The taxpayer arranged to receive his brother's invalid pension so that he could use the moneys to provide for the brother's maintenance. It was arranged that $2 per week would be deducted for rent of the taxpayer's house. The Court held that the weekly amounts of $2 were not assessable income.

Arms length letting of an identified part of a residence, e.g. a bedroom, with access to general living areas

9. This heading typifies a situation which is commonly encountered. A variety of arrangements may occur in situations of this nature. The rent payable may cover variable or running costs such as electricity, heating, etc. or the arrangements may require the tenant to pay, in addition to rent, a separate amount towards variable or running costs. The heading would also cover situations where board and lodging is provided.

Letting of property to relatives

13. Where property is let to relatives the essential question for decision is whether the arrangements are consistent with normal commercial practices in this area. If they are, the owner of the property would be treated no differently for income tax purpose from any other owner in a comparable arms length situation.

14. If property is let to relatives at less than commercial rent other considerations arise. Unless the arrangements are comparable to those in FCT v Groser referred to earlier, the rent would represent assessable income. It would not necessarily follow, however, that losses and outgoings in relation to the property would be wholly deductible. The ultimate resolution of the matter would depend upon the purposes of the taxpayer in acquiring the property and in letting out to relatives.

15. 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.

16. 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.