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Edited version of your written advice
Authorisation Number: 1012827796385
Date of advice: 23 June 2015
Ruling
Subject: Am I in business
Question
Are you carrying on a business of renting out properties?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You and your business partner run a rental property management activity under a partnership structure.
You and your business partner own a number of properties, each of which contains numerous dwellings that are available for rent.
The properties are not rented through agents.
You arrange payments of all accounts and collection of bond and rental income.
You prepare all lease agreements and lodge to the relevant authorities.
You interview all prospective tenants.
The properties are rented at a commercial rate at arm's length.
Where possible repairs and maintenance are conducted by you and your business partner, otherwise you engage a tradesman.
You and your partner spend a significant amount of time each per week on the activity.
You have an advertising plan.
You have a business plan.
You keep financial records.
Neither you or your business partner have other employment.
You have undertaken self-education in relation to residential rental management activities.
The activity is profitable, and you expect the profits to increase in the coming years.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 995-1
Reasons for decision
Carrying on a business
Section 995-1 of the Income Tax Assessment Act 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.
The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the particular facts.
Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes.
In the Commissioner's view, the factors that are considered important in determining the question of business activity are:
• whether the activity has a significant commercial purpose or character
• whether the taxpayer has more than just an intention to engage in business
• whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity
• whether there is regularity and repetition of the activity
• whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business
• whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit
• the size, scale and permanency of the activity, and
• whether the activity is better described as a hobby, a form of recreation or sporting activity.
No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression gained.
Taxation Ruling IT 2423
IT 2423 considers the liability to interest withholding tax where a non-resident of Australia borrows moneys from financial institutions outside Australia to purchase properties in Australia from which rental income is derived.
The ruling also considers when renting properties constitutes a business for tax purposes.
The conclusion that an individual is carrying on a business of letting property largely depends upon the scale of operations. An individual who derives income from the rent of one or two residential properties would not normally be thought of as carrying on a business. On the other hand if rent was derived from a number of properties or from a block of apartments and management of those properties was handled by the taxpayer it would indicate the existence of a business.
Application to your circumstances
In your case the Commissioner considers you are carrying on a business of rental properties. Your volume of operations is substantial. As you perform most of the activities required for the managing and maintenance of your rental properties, your scale of activities adds weight to the overall impression you are carrying on a business. To conclude the Commissioner is satisfied you are carrying on a business of letting rental properties.
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