1 Is the portion you receive as a supportive housemate, which you describe as an accommodation contribution, assessable to you under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
1 Yes. Question 2 Can you claim the amount paid for your accommodation at the participant's residence as a tax deduction under section 8-1 of the ITAA 1997? Answer 2 No. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
You hold a sole trader Australian Business Number (ABN). You entered into a Service Agreement as an independent contractor to provide services for a National Disability Insurance Scheme (NDIS) participant. The agreement covers a specific period and was executed between you and the participant's family. Under the agreement: • You charge per week for your services. • You issue invoices every two weeks. The invoice template shows an amount, calculated as service hours per period. An addendum to the service agreement, executed on the same date, specifies the address of the service location, which is the participant's residence, and additional terms relating to the arrangement. On the same date, you also entered into an agreement with the participant's family for accommodation at the participant's residence. The accommodation contribution represents a portion of the client's household costs, which you are required to repay to the participant's family under the terms of the agreement.
Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 8-1
Issue 1 Onsite accommodation Question 1 Is the portion you receive as a supportive housemate, which you describe as an accommodation contribution, assessable to you under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? Summary Yes. The amount you receive as a supportive housemate is assessable under section 6-5 of the ITAA 1997, regardless of whether any portion is described as a contribution. Subsection 6-1(1) of the ITAA 1997 states that assessable income consists of ordinary income and statutory income. Section 6-5 of the ITAA 1997 provides that ordinary income is income according to ordinary concepts, generally including 3 categories - income from rendering personal services, income from property, and income from carrying on a business. Application to your circumstances Under the payment terms in the Service Agreement and the invoice template, you are required to provide a number of hours of support per period to assist the participant with tasks. You charge per hour for these services, which is considered ordinary income from personal services under section 6-5 of the ITAA 1997.
The Commissioner views the payment to the participant's family for your accommodation as separate from this income. It does not alter the fact that you earn income from hours of services provided. This payment is not a reimbursement because the family did not incur any expenses on your behalf. Instead, it represents the rent amount retained by the family for leasing you a room in the participant's residence. This arrangement does not differ from an individual using their own earnings to pay rent. The only distinction is that the party engaging your services also happens to be your landlord. Therefore, the income you receive as an employee including the amount classified as a contribution is assessable under section 6-5 of the ITAA 1997. Question 2 Can you claim the amount paid for your accommodation at the participant's residence as a tax deduction under section 8-1 of the ITAA 1997? Summary No. The accommodation payment is a private living expense under section 8 1 of the ITAA 1997, and therefore not deductible. Detailed reasoning Under section 8-1 of the ITAA 1997, a taxpayer can only deduct an accommodation expense if:
• they necessarily incur the expense in gaining or producing their assessable income; and • the expense is not of a capital, private or domestic nature. Taxation Ruling 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances (TR 2021/4) provides guidelines on the deductibility of accommodation expenses. The underlying principle also applies to taxpayers who are engaged as independent contractors. TR 2021/4 outlines the following: When determining whether an expense is necessarily incurred in the course of gaining or producing assessable income, consideration should be given to the scope of the taxpayer's income-producing activities. Accommodation and food and drink expenses are referred to as 'living expenses' in the ruling when they are not deductible. Living expenses are not deductible because they are private or domestic in nature. They are considered a prerequisite to earning income, as a person must eat and sleep somewhere, whether or not they engage in employment.
Living expenses are not expenses incurred in performing income-producing activities. Even if they are necessary for employment, this does not make them deductible under section 8 1. Where a taxpayer has relocated for work, the cost of accommodation and food and drink will be living expenses. This applies regardless of whether moving to the new location is required by the work. An exception applies when a taxpayer travels and stays away from their usual residence overnight in the course of performing their income-producing activities and incurs accommodation and food and drink expenses, these expenses will generally be deductible under section 8-1. Application to your circumstances The amount paid for your accommodation at the participant's residence is considered a living expense under TR 2021/4 for the following reasons: • The accommodation payment is not incurred in performing income-producing activities. • You have a number of contracted tasks. • These tasks take approximately a number of hours per day and are likely completed during the day.
• Your passive overnight presence is incidental to your personal need for accommodation. • You have effectively relocated to the participants residence, rather than temporarily living away from your usual home for income-earning purposes. While the agreement requires you to be present overnight, this obligation cannot be separated from your own need for a place to sleep, especially given that you do not maintain any other usual residence at the same time. Although your overnight presence might be viewed as a contractual requirement, simply being on-site does not form part of your income producing services, as you do not receive any payment for staying overnight. Under TR 2021/4, living expenses are not considered to be incurred in performing income earning activities, even when they are necessary for employment. A contractual obligation is of the same character and does not change the private or domestic nature of accommodation costs and therefore does not make them deductible under section 8 1.
The exception rules do not apply as you do not travel away from your usual residence overnight in the course of performing your income-producing activities. Hence, the accommodation payment is a private living expense under section 8 1 of the ITAA 1997. It is a prerequisite to earning income, not incurred in performing income-producing activities, and therefore not deductible.