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Money received from housesitter

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Megastar

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Replies 6

An associate of mine rents a house from a landlord/owner at, say $500 per week.  During 18/19 financial year he travelled overseas for 6 months for work/study purposes (remaining an Australian resident for tax purposes the whole time).  He continued to pay his rent to the owner while he was away, but during that period he also arranged for someone to 'housesit' the property, and the housesitter in turn paid a (significantly reduced) rent (say $300 per week) direct to my associate. The owner was aware of the arrangement and had no difficulty with it.  Thus my associate made a loss (by still having to make up the difference in the rent) but had the benefit of having someone in the house to look after his stuff etc.  As noted above, the housesitter paid the reduced rent amount direct to my associate (not direct to the landlord).  At the housesitter's request, my associate also confirmed on a Centrelink form the amount that the housesitter was paying to him, for the purpose of the housesitter claiming rent assistance (must have been on a benefit).

My associate is fastidious about his tax obligations and wants to make sure to do the right thing tax-wise in terms of this arrangement (and I am conscious that the $300 per week payment is now in Centrelink records).  My reaction to this is that it should not affect his taxable income at all, but neither could he claim a loss, but am struggling to express this in terms of tax principles.  It seems to me that notwithstanding that my associate received $300 per week essentially of rental income, in order to earn this income, my associate had to expend $500 per week (to rent from the owner).  In theory therefore my associate might 'negatively gear' the arrangement (ie claim a $200 per week loss).  But I am sure this is not right, and am assuming this is because either (a) the associate himself does not own the property (but why does this matter - is it because there can be no prospect of a capital gain at the end as the asset is not owned?); or (b) it is essentially a private arrangement and not done for the purpose of generating income.

Can someone clarify for me what effect this ought to have on my associate's income for tax purposes (any ATO references or links appreciated), and whether any entries need to be made in MyTax to reflect it - or can it simply be ignored altogether?

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Most helpful response

ATO Certified Response

Community Manager

Replies 0

Hi @TommyBoy,

 

Thanks for your patience.

 

It is not considered that you would need to declare a 200 dollar per week deductible loss. Based on the facts provided, it is likely that no income should be declared either. 
 
In the standard scenario of one person signing a lease to live in a property as a home, and another person sharing the costs to also live in the property, there are not considered to be any tax consequences for that scenario.

 

The scenario involves two parties sharing the costs of living in a residence that is leased, with one of the parties signing the lease.  In that scenario, if the lessee were to be away for periods of time then that absence by itself should not change the tax outcome. No tax outcomes arise and nothing needs to be recorded on a tax return.

 

If it was considered that the lease payment (less than the full payment) received was assessable income, then a portion of expenses up to the amount received could be claimed. As the person plans to return to the residence this implies an element of private purpose, it would be considered that there is no need to report the income or claim the deductions. This approach is consistent with the current application of IT 2167.

 

Thanks

 

KylieS

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Megastar

Replies 5

I should add that I have considered IT2167 which reinforces my view that there should be no effect on my associate's tax as, like the houseshare situation at para [18] the arrangement does not confer any benefit on the owner. There is no assessable income and the question of allowable deductions does not arise."  However none of the examples in IT2167 are on all fours with my associate's situation.

I should also add that I understand it to be an arms-length situation - ie the housesitter is not a relative or close friend.

The more I think about this it seems to turn on the intention of the arrangement.  There was no intention to make assessable income or turn a profit - indeed there was never any prospect of making a profit given that the income would always be less than the cost.

But how to deal with it in MyTax?

Taxicorn

Replies 4

This looks very much like subletting:

 

income earned by subletting a rented property is assessable income to the original tenant.

Deduction for expenses can be claimed-such as internet, electricity and a proportion of the rent.

As the initial tenant does not own the property the income earned by subletting would be declared as business income instead of rental income.

Megastar

Replies 3

Hi macfanboy,

 

Thanks for your reply.  Yes it is essentially subletting (at law my associate is informally leasing the entire premises to the housesitter for the duration of his trip), however unlike most subletting or houseshare situations that the ATO considers (where you rent out one room), this is the entire house.  Nor is it like AirBnB where the intention is to earn income.  The arrangement is plainly not intended to turn a profit - the whole arrangement runs at a loss to my associate and is simply for the purpose of having someone look after the place and cover some of the rent while he is away, allowing him to hold on to the lease in order to be able to move in again on his return.  Hence I struggle with the idea that this can be categorised as business income.  But if it is, and as you say, a 'proportion' of the rent can be claimed as a deduction, which proportion?  The sublease is of the entire house.  If you mean he declares the $300 per week as business income, then he has incurred (ignoring the utilities) expenses of $500 per week (being the rent he pays to the owner).  Do you think he can therefore claim the $200 per week loss as a business loss against his other income? That seems very odd to me.  Appreciate your further thoughts if you have time.

Community Manager

Replies 1

Hi @TommyBoy,

 

This is a really interesting one, we are going to get a specialist to give us some information to pass on.

 

KylieS

Community Manager

Replies 0

Hi @TommyBoy ,

 

We haven't forgotten you, just checking our information.

 

Thanks

 

KylieS

Most helpful response

ATO Certified Response

Community Manager

Replies 0

Hi @TommyBoy,

 

Thanks for your patience.

 

It is not considered that you would need to declare a 200 dollar per week deductible loss. Based on the facts provided, it is likely that no income should be declared either. 
 
In the standard scenario of one person signing a lease to live in a property as a home, and another person sharing the costs to also live in the property, there are not considered to be any tax consequences for that scenario.

 

The scenario involves two parties sharing the costs of living in a residence that is leased, with one of the parties signing the lease.  In that scenario, if the lessee were to be away for periods of time then that absence by itself should not change the tax outcome. No tax outcomes arise and nothing needs to be recorded on a tax return.

 

If it was considered that the lease payment (less than the full payment) received was assessable income, then a portion of expenses up to the amount received could be claimed. As the person plans to return to the residence this implies an element of private purpose, it would be considered that there is no need to report the income or claim the deductions. This approach is consistent with the current application of IT 2167.

 

Thanks

 

KylieS