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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011857296815

Ruling

Subject: Paying spouse to manage rental properties

Question:

Are you entitled to a deduction for any amounts you pay to your spouse to manage your rental properties?

Answer:

No.

Relevant facts

You are the sole owner of a rental property interstate. This property is managed by an estate agent.

You and your spouse jointly own a rental property which your spouse manages, in a suburb close to your home residence.

Your spouse deals with the agent for the interstate property, manages accounts, analyses and approves tenants, compares and approves quotations for work, and communicates with strata management and organises strata fees payments.

Your spouse spends X hours per week on managing the properties, and keeps a work diary to record activities and time spent.

You intend to pay them $XX per hour for managing the properties and maintaining the investment property accounts.

Your spouse is a Bachelor of Commerce graduate and has had prior experience in managing rental properties.

You intend to pay your spouse superannuation at a rate of 9% per annum if the Tax Office accepts this arrangement with your spouse.

Your spouse works in the retail industry on a casual basis.

Your spouse has not yet completed an employee declaration in relation to the investment property activities, but is happy to do so.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income. No deduction is allowable where the losses and outgoings are of a capital, private or domestic nature or are incurred to gain or produce exempt income.

The interstate property is managed by an estate agent and therefore it is not accepted that your spouse is employed by you as a property manager for this property. As the property is managed by an estate agent, it is considered that any activities your spouse performs in relation to the property are minor in nature. The arrangement is more akin to a spouse assisting their spouse rather than an employee performing employment duties as a property manager. Any payment you make to your spouse would be considered private in nature and not deductible.

The property near your home is jointly owned by your spouse, and as such, any management functions they carry out are simply those which would be performed by any owner. Therefore, it is not considered that you are entitled to a deduction for any payment you make to them in relation to any management functions they carries out for this property.

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