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Re: Rent or domestic agreement?

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Newbie

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I currently live in a townhouse with my partner, the property is 100% under my ownership. He pays me the standard house share rental rate for the area, which I put on bills and the mortgage. We both consider this as rent. I assumed I would have to claim this as rental income, however I have just read about the 'domestic agreement'. If anyone has any insight or knowledge, or experience with a similar situation that they could share it would be greatly appreciated!

 

Kate

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Devotee

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Hi @Kate94,

 

Thanks for posting! It sounds like you've already checked out IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. ...

 

Generally speaking, payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. In these situations, you also can't claim income tax deductions. However, if the rent you're receiving is at commercial rates and you entered into the arrangement with a view to making a profit, you may be considered to have an 'at arms length' agreement and may need to report these amounts as income.

 

We can help you find information here in the Community, but we don't have enough detail about your situation to provide a definite answer. You might like to contact our early engagement team to ask for our view on how we think tax law applies in this situation - you can ask for a follow up email or call back using the form on our website.

 

Thanks!

7 REPLIES 7
Highlighted

Best answer

Devotee

Replies 6

Hi @Kate94,

 

Thanks for posting! It sounds like you've already checked out IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. ...

 

Generally speaking, payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. In these situations, you also can't claim income tax deductions. However, if the rent you're receiving is at commercial rates and you entered into the arrangement with a view to making a profit, you may be considered to have an 'at arms length' agreement and may need to report these amounts as income.

 

We can help you find information here in the Community, but we don't have enough detail about your situation to provide a definite answer. You might like to contact our early engagement team to ask for our view on how we think tax law applies in this situation - you can ask for a follow up email or call back using the form on our website.

 

Thanks!

Newbie

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ATO Certified

TaxTime Support

Replies 4

Hi @Breeze

 

Your understanding of  IT 2167 based on what you have said is correct.

 

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.

 

In essence, doing this you are not required to report it in your tax return alternatively neither can you claim expenses but the good thing will be  at a future date should you sell and you have remained living in the home it would qualify for the Main Residence Exemption for CGT.

 

Enjoy your new home.

 

Kind Regards
MarkA

Newbie

Replies 3

Thanks Mark.
I got an advice from the ATO. It confirms what you just mentioned above. However it is not clear about tax consequences for my sister if she joins in taking the loan with me (taking the loan with me would mean that her name would be on the title). She lives in another state and is not a QLD resident.
Can she also rely on this tax ruling? If not, is there any other area of tax that addresses this situation? We want to know our tax obligations before proceeding with any loan or purchases.

An advice on this is very much appreciated.

ATO Certified

TaxTime Support

Replies 2

Hi @Breeze,

 

Thanks for getting in touch!

 

If your sister's circumstances are covered by this ruling, then yes, she can rely on it if she chooses to do so. You can learn more about our advice and guidance, including public rulings here.

 

Otherwise, if she would like something specific to her personal situation, she will need to seek other options.

 

Hope this helps,

 

Rachael B.

Newbie

Replies 1

Thanks Rachael,

The ruling is hard to understand so I am not sure whether my sister's situation is covered by this ruling. There are mentions of two cases which I think may apply to my sister but I cannot find those cases to read all the facts and compare.
My sister lives in VIC and would like to contribute in buying a house with me for parents in QLD. Unlike me, she will not be living in the property. Is this also a domestic arrangement? Does she have to charge us rent for her share of property and declare rental income in her tax return? Would there be a CGT for her down the track?

TaxTime Support

Replies 0

Hi @Breeze

 

The thread is becoming a little confusing so I am just going to address exactly what you have asked (:

 

A Capital Gain Tax event will always be determined by whose names are on the title deed. If your sisters name is going on the title deed and she does not live there then she could expect to have a Capital Gain or Loss at some future point if you sell. As the Main Residence exemption will only apply to an owner who lives in the house.

 

Alternatively she can choose to give a genuine gift of money to her parents and they in turn have their names on the deed or directly to you if she doesn't want the involvement.

 

I suspect though your family is just wanting to contribute to ongoing expenses in board and lodging to whoever the owners on the deeds are.So no one is obliged to charge rent  or otherwise, this is more about what the family owners want to do .If your sister wants to rent and claim deductions on her percentage of expenses she could do so but if you believe it meets the definitions of a domestic arrangement she may find that much simpler.

 

I hope this clarifies somewhat, if not however, once you decide on the exact structure you can seek a private ruling as RachelB in this thread advised under other options.

 

 

Kind Regards
MarkA

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