Edited version of your written advice

Authorisation Number: 1051467808403

Date of advice: 19 December 2018

Ruling

Subject: Business - am I in business? (short-term accommodation)

Question:

Do your activities in relation to the Property constitute the carrying on a business of providing short-term accommodation?

Answer:

No.

This ruling applies for the following period

Income year ending 30 June 2019

The scheme commences on

1 July 2018.

This ruling applies for the following period:

Income year ending 30 June 2019

The scheme commences on:

1 July 2018.

Relevant facts and circumstances

Background

After 20 September 1985, a contract to purchase the property (the Property) for $XX,XXX was entered into by you, being Person A and Person B, and your children as tenants in common as follows:

● XX% - Person A;

● XX% - Person B;

● X% - Person C; and

● X% - Person D.

Settlement on the purchase of the Property occurred after a short period of time.

The Property was a vacant block of land, with a land area of X acre/s, located in an estate (the Estate) which consists of a number of X acre/s vacant lots.

A tourist facility, being the Business XYZ, has been operated by Person X and Person Y at the Estate for a number of years.

A number of years after the Property was purchased Persons C and D transferred their ownership interests in the Property to you, being Persons A and B.

At present, the house on the Property is one of the first to be constructed and operated as a tourist accommodation in the Estate.

You are charged an annual Strata Fee by the Estate.

Feasibility survey summary

Over a number of years, commencing shortly after the Property was purchased, you undertook a feasibility study with the information for the survey being sourced from Persons X and Y from a real estate advisory firm (Advisory Firm), who are a mortgage loan provider and builders, with an online site.

You had a meeting with Persons X and Y during which the area in which the Property is located was presented as the top investment location due to the tourist demand and mining activity. Additionally, properties in that area were available through the Advisory Firm.

Person A became a member of the Advisory Firm which provided access to their website and other websites.

As a result of the feasibility study a Feasibility Summary Report was prepared which included the following statements:

● Person X and Y are the owners of Business XYZ which at that time had been operating for a number of years at the Estate;

● Person X is an Estate Executive Committee Member and the head of the Estate Building Committee;

● Persons X and Y provided information on the construction costs, operating revenue, operating costs, occupancy, market growth, accommodation supplies and answered questions to convince you that the business is viable. They pointed out that the more construction in the Estate, corporate guests could find the Estate an attractive venue owing to the availability of a Club House comprising of a large hall, tennis court and swimming pool; and

● Financial projections were prepared with report (the financial projections were revised and provided with the private ruling) as listed below:

Construction of house on Property

A number of years after the Property was purchased a report (the Report) was prepared, being an evaluation of energy efficiency under the relevant Building Code of Australia (BCA) provisions. The Report outlined the following:

● the proposed development was described as the construction of a single storey building for the use as Tourist and Visitor Accommodation;

● the particular works relevant to the scope of the BCA Section J were provided in the DA prepared by the builder which relates to building fabric, glazing, building sealing, artificial lighting and power and access for maintenance and facilities for monitoring; and

● the proposed development would satisfy Section J and achieve compliance if the recommendations included in the Report were followed.

You chose a design of house offered by the builder to be constructed on the Property because the design suited the long frontage of the Property.

The builder lodged a development application (DA) with the Council for the construction of a house on the Property. The DA included conditions the Property needed to comply with to meet the Building code of Australia energy efficiency provisions in accordance with Section J of the BCA provisions.

After a number of months the Council issued a notice of Determination of DA to the builder which included the following information:

Your children transferred their ownership interests in the Property to you.

During the following year construction of the house on the Property commenced, with the handover from the builder occurring after a number of months.

Internal modifications were made to the house with an additional half bathroom being added to suit the requirements of short-term accommodation. Wheelchair access for disabled persons was provided in a bathroom, corridors, patio, external paths and parking to comply with the DA.

The construction of the house cost $XXX,XXX, which included the contract price of $XXX,XXX and $XX,XXX for costs of variations.

In addition to the construction costs, you incurred the additional costs of $XX,XXX for a rainwater tank, septic tank, irrigation system, electrical work for septic/rainwater tanks; and miscellaneous costs such as equipment hire.

The house was constructed on a portion of the Property with the other part being available for expansion purposes.

You have paid $XXX for rates in relation to the Property at this point.

You obtained insurance for the Property for a period of 12 months to cover a self-managed holiday rental house.

Short-term accommodation activities

The Property commenced being used for short-term accommodation in the same month that the construction of the house was completed.

The bookings for the Property are managed by publicly available software site (Software site), which is a centralised Web access management system that sets prices and accepts instant bookings from advertisements on various websites, and other booking channels. The Property is continually offered on over 200 travel sites in 75 countries in addition to you having your own website.

When booking through Site A, visitors make payments to Site A, who transfer it after deducting their commission to your nominated bank account (Bank Account) when the visitors check-in.

If booking through other channels, such as Site B, visitors supply credit card details to Person B who collects the payment in your Bank account via a facility offered by the bank. The payments are collected prior to the visitor’s check-in.

You use the Bank Account exclusively for your short-term accommodation activities.

Visitors do not pay a deposit bond and if damage occurs due to their failure to comply with the house rules you make a claim via the booking channels on the visitor’s credit card.

The room rate per day varies depending on depending on events, such as musical shows, weekdays and number of guests. A cleaning fee of $XXX and a service fee for amenities of $XXX is charged per stay.

Site A charges commission of 15% on room rate and all extra charges, including extra visitors, cleaning fees and service charges. Site A reservation details provide the amount for the stay, per nights, and the amount of their commission.

Site B charges commission of 12% on the room rate. Site B payment details provide the rate per night, a subtotal for the number of nights per stay, cleaning fee of $XXX per stay and service charges of $XXX per stay.

Site D reservation details provide the daily rate, a subtotal for the number of nights per stay and $XXX fees per stay.

The standard online agreements provided by Site A and the other booking channels are used.

Visitors have access to the meeting and recreation facilities located at the Estate.

Person B spends an estimated XX hours per week undertakes the following activities in relation to the Property:

Person B does not have any other employment.

The following parties undertake activities in relation to the Property:

The visitors contact Person B to co-ordinate repairs during their stay, who will then contact the Caretaker for minor repairs, or the Handyman who looks after other repair work during the visitors stay in addition to ad-hoc maintenance.

The visitors gain access to the Estate via a secured boom gate and then gain access to the Property using keys placed in an onsite lockbox. The codes to the boom gate entry and the lockbox are supplied to visitors by Person B. Keys are left in the lockbox on the visitor’s departure.

Reports are downloaded from the software provider and booking channels. Excel spreadsheets showing records of short-term accommodation are kept.

The following amenities are provided with the Property:

● reverse cycle;

● linen and towels for up to ten visitors;

● fully equipped kitchen, with coffee and milk provided;

● shower supplies, including body wash, shampoo and conditioner;

● flat screen televisions;

● washing machine and dryer;

● sofa bed;

● porta cot;

● iron

● Wi-Fi and Foxtel;

● heating; and

● children’s games.

The amenities are refreshed prior to each check-in.

A summary of the bookings sourced from the Software Site indicates that:

● XX nights stay had been booked and paid for a number of months with check-in dates commencing during the month after the house was constructed; and

● XX nights have been booked, with payment still to be received, with check-in dates from a number of months after the house was constructed through to the following year.

The Property is not used for any private use.

Business strategy

Your strategy is to operate a ranch style tourist facility. You have determined that based on the research carried out in relation to the feasibility report that demand in the area the Property is located is driven by tourists and corporate (including mining) getaways.

Initially, the Property is being booked by tourists in groups of up to XX visitors. However, it is anticipated that as the construction on the other lots in the Estate progresses there will be more demand for corporate getaways. The corporate market demand is for twenty plus people per stay in facilities that offer meeting and recreation facilities like the Estate Hall, swimming pool and tennis court which are provided for the use of visitors.

Business summary

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Summary

You are not carrying on a business in relation to your Property. It is considered that the scale of activity and volume of operations carried on by you is insufficient to be considered as carrying on a business during the 2018-19 income year.

Detailed reasoning

Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income according to ordinary concepts. This ‘ordinary income’ includes amongst other things, income from salary and wages and business operations.

Section 8-1 of the ITAA 1997 allows you to claim a deduction for a loss or outgoing that is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business to gain or produce assessable income. These deductions are limited by the exclusion of losses or outgoings that are capital, private or domestic in nature.

Carrying on a business

Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

Paragraph 8 of Taxation Ruling TR 2003/4 Income tax: boat hire arrangements (TR 2003/4) (which is about whether boat charter activities generate business or investment income) states:

The receipt of income from the lease of an asset does not of itself amount to the carrying on of a business (see FC of T v. McDonald 87 ATC 4541; (1987) 18 ATR 957), but instead would generally be the passive receipt of income from property.

Paragraph 51 of TR 2003/4 states:

Beaumont J indicated (quoting Wertman v. Minister of National Revenue 64 DTC 5158) that for a business to be carried on by owners of property, one would expect that they would be involved in providing services in addition to the process of letting property (as with a boarding house), not merely receiving payments for the tenants' occupation of the property.

While TR 2003/4 is about boat hire arrangements the above statements indicate that a person who simply owns an investment property or several investment properties, either alone or with other co-owners, is usually regarded as an investor who is not carrying on a rental property business. There has to be something special about the activity to reach the conclusion that a business is being carried on. This will generally relate to the provision of additional services to the client in a manner that enhances the gross return above investment levels.

Taxation Ruling IT 2423 Withholding tax: whether rental income constitutes proceeds of business - permanent establishment - deduction for interest is also relevant for the present discussion. The ruling discusses whether rental income constitutes proceeds of business. Although the ruling refers to situations where rent was being derived, the principles also apply to other situations where accommodation is provided for reward.

The scale of operations is an important factor to consider in deciding if an individual is carrying on a business of letting property. Scale of operations refers to the number of properties, rather than the frequency of tenancy. Paragraph 5 of IT 2423 refers to the situation of an individual with rental properties and carrying on of business:

A conclusion that an individual is carrying on a business of letting property would depend largely 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, that may indicate the existence of a business.

The issue of whether individuals are carrying on a business of letting property has been considered in a number of cases, some of which are discussed below.

In Cripps v. FC of T 99 ATC 2428; (1999) 43 ATR 1202 (Cripps case), the taxpayer and his wife purchased, as joint tenants, 14 townhouses which they rented out. They also purchased a property which was used initially as a holiday home but was later periodically rented out. A further property was purchased for residential purposes. After a failed attempt to sell it, it was also rented out. The Administrative Appeals Tribunal found that the taxpayer and his wife were mere passive investors and were not in the business of deriving income from rental properties. They rejected the taxpayer's argument that he had greater involvement with his 16 properties. The Tribunal also made the following observation about Taxation Ruling IT 2423:

The Applicant asked me to note in particular paragraph 5 of Taxation Ruling IT 2423 (a non-binding ruling) which is referred to in clause 17 of TR 93/32 to the effect that: ``... if rent was derived from a number of properties or from a block of apartments, that may indicate the existence of a business''.

Paragraph 5 of IT 2423 suggests only that a number of properties may indicate the presence of a business; it follows of course that it will not of itself be determinative.

In 11 CTBR (OS) Case 24 (Case 24), the taxpayer's income included rents from three properties. The taxpayer employed a manager and an accountant - he was principally a letting clerk with authority to refuse tenants. He collected and banked rents, attended to repairs and supervised them, and controlled the caretaker and cleaners. He kept books in connection with rents and repairs, and rates and other outgoings. The taxpayer said he personally carried out the principal part of the management of his rent-producing properties and directed policy, attended to the financial arrangements and made decisions regarding repairs. The taxpayer claimed that he was carrying on a business. In holding that he was not carrying on a business, a majority of the members of the Board of Review said:

It is obvious that some measure of supervision and management must ordinarily be exercised by a property owner who lets offices, &c., and if that does not amount to the carrying on of a business, the fact that he employs others to assist him, either in the letting of the properties or in the preparation of the accounts relating to his rents and outgoings, will not make any difference. For the foregoing reasons we are unable to uphold the claim that the taxpayer is engaged in a 'business as property owner’....

In 15 CTBR (OS) Case 26, (Case 26) the taxpayer derived income substantially from her joint ownership of a block of flats (containing 22 living units) with her sister-in-law. A swimming pool was shared with a neighbouring block of flats owned by the taxpayer's husband and his brother. A garden was maintained and a staff of one caretaker and one cleaner employed on both buildings with casual labour as required. The building was erected and financed by F & Co., the husbands of the joint owners, in the course of their business as building contractors. The general supervision of letting, rent collecting, servicing and maintenance was carried out by the owners or by F & Co. on their behalf. No charge was made by F & Co. for the extensive assistance given in the supervision of the flats. It was held that a business was not being carried on by the owners of the block of flats.

On the other hand, Case G10 75 ATC 33 (Case G10), the taxpayer owned two properties of which six units were let as holiday flats for short term rental. The taxpayer, with assistance from his wife, managed and maintained the flats. Services included providing furniture, blankets, crockery, cutlery, pots and pans, hiring linen and laundering of blankets and bedspreads. The taxpayer also showed visiting inquirers over the premises, attended to the cleaning of the flats on a daily basis, mowing and trimming of lawns, and various other repairs and maintenance. The taxpayer’s task in managing the flats was a seven day a week activity. The Board of Review held that the activity constituted the carrying on of a business. In reaching that conclusion, the Board found:

It was clearly established in evidence that the money received by the taxpayer from the occupants of the flats was not solely a payment for the right to rent a flat for a certain period.

Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? provides the Commissioners view of the factors used to determine if a taxpayer is in business for tax purposes. Its principles are not restricted to questions of whether a primary production business is being carried on.

In the Commissioner's view, the factors that are considered important in determining the question of business activity as outlined in TR 97/11 are as follows:

● 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.

The above factors are framed in TR 97/11 to reflect that the alternate outcome is as described in the final dot point. The analysis in your case must reflect that the alternate outcome would be to conclude that your activities are an investment.

TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' (Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case.

Application to your situation

We have made the following observations when determining whether you are carrying on a business in relation to your short-term accommodation activities during the 2018-19 income year:

● The 'significant commercial purpose or character' indicator is closely linked to the other indicators and is a generalisation drawn from the interaction of the other indicators. It is particularly linked to the size and scale of activity, the repetition and regularity of activity and the profit indicators.

You purchased the Property for $XX,XXX and constructed the house on it with construction costs being $XXX,XXX plus additional costs of $XX,XXX, totalling around $XXX,XXX.

The Property commenced being used for short-term accommodation shortly after the construction of the house was completed.

The Property is the only property that you are currently using for short-term accommodation.

The Property is advertised on a number of booking channels on which visitors book the Property. Amounts in relation to the visitor’s stays are paid into your Bank Account.

Person B travels to the Property on a weekly basis to refresh supplies and inspect the Property. They also keep records, respond to daily enquiries from visitors, communicate with the Caretaker and Handyman and complete the administrative work arising in relation to the short-term accommodation activities.

You engage the services of others to undertake activities in relation to the Property such as repair/maintenance, mowing, garbage removal, inspecting the Property after visitors have left, housekeeping, cleaning.

The net return from your activities as outlined in the original financial projection and revised financial projection for the first 12 months were a net profit of $XX,XXX and net loss of $X,XXX respectively. The revised financial projection for the next 12 months was calculated as net profit of $XX,XXX. Given that your capital outlay in relation to purchasing the Property and construction the house totalled $XXX,XXX, your estimated net returns are less than 5% of your capital outlay. It is viewed that your estimated net returns are at investment levels.

Therefore, it is viewed that you are not receiving a commercial, or businesslike, return on the funds that you have invested in this activity, or for Person B’s estimated time of around X,XXX hours of effort per year, calculated as XX hours per week for XXX weeks.

● The taxpayer's involvement in the business activity should be motivated by wanting to make a tax profit and the taxpayer's activities should be conducted in a way that facilitates this. This will require examining whether objectively there is a real prospect of making such a profit from participating in the business of the taxpayer.

No financials have been provided for the 2018-19 income year. However, the revised projected financials outline that the Property will make a net loss in the first 12 months and will make a net profit of in the second 12 month period.

It is estimated in the revised financial projections that within a number of years the cash profit from the short-term activities will be $XX,XXX and the net profit will be $XXX,XXX. As outlined above, the expected net amounts in the revised financial projections are considered to be investment level when compared with the capital invested in purchasing the Property and constructing the house in which to undertake the short-term accommodation activities.

Additionally, if a business was being carried on a deduction could be claimed for Person B’s travel expenses which would increase any net loss and decrease any net profit amounts.

● The taxpayer's activities should involve repetition and regularity and have an air of permanence about them. With regards to letting of properties, repetition and regularity may be measured by factors such as regularity of maintenance, collecting of rent, management and advertising of the properties, insurance, dealing with tenancy agreements and inspection reports.

In comparison to some property owners your daily involvement is minor. Given the activities of other property owners who are considered to be carrying on a business of conducting short-term accommodation activities it could not be concluded the level of repetition and regularity of your activity is the same, such as in Case G10.

We are looking at those activities that would be required in the renting of properties. If there was a block of 30 holiday units rented on a short time basis there is an extensive amount of work conducted on a daily basis in meeting tenants, providing cleaning, linen and other services. The fees paid by the tenants are for both the services and the use of the property and if it is of sufficient scale, because of the regularity of these services it can be argued that they could be carrying on a business of renting properties.

The level of repetition and regularity of your activities is not as great as that noted in Case 26 where despite the management and maintenance activities undertaken, the property owners were not considered to be carrying on a business of letting properties.

The overall impression is that you are not carrying on a business of short-term rental. The income is derived predominantly from the letting of the Property and not from activities or services provided in relation to renting the Property out.

● If a taxpayer carries out their activity in a manner similar to other taxpayers in the industry, it is more likely that their activity amounts to the carrying on of a business. That is, the taxpayer's operations are of the same kind and carried on in the same way as those characteristic of ordinary trading in that particular line of business (IR Commissioners v. Livingston 11 TC 538).

This indicator requires a comparison between the activities of the taxpayer in question and those undertaken by a person in business in the same type of industry. Where the taxpayer's activities are similar in nature to the business, further support is given to the fact that a business exists.

Generally, where the property owners grant exclusive possession of the property to the residents the relationship between the two parties is one of tenant and landlord, and the activity is more likely to be passive investment rather than a business. Similarly, activities constituting the mere maintenance of an asset and the mere collection of income do not indicate the existence of a business of renting premises.

Your activity in renting out the Property is the renting of a residential property at market rates. Hence the relationship between you and the visitors is considered to be that of a landlord and tenant, with the tenant having exclusive possession of the Property during the period of their stay. Your activities are more indicative of a passive investor than someone carrying on a business.

● The activities conducted by, or on behalf of the taxpayer, should be carried out in a systematic and organised manner. This will usually involve matters such as the keeping of appropriate business records by the taxpayer. If the activities are carried out on the taxpayer's behalf by someone else, there should be regular reports provided to the taxpayer on the results of those activities.

You state that you download reports from software site, Site A and other booking channels. Excel spreadsheets showing records of short-term accommodation are kept.

It is reasonable to expect anyone investing in rental properties, including passive investors, to keep records in relation to their rental property/ies so that they can keep informed as to whether or not they are making a profit in relation to the rental property/ies and to make decisions as to what activities to undertake in relation to their properties to maximise their returns.

● When considering the size and scale of the activity we are looking at the scale in terms of the number of properties and what management input that may be required to conduct the activity.

The business should be large enough to make it commercially viable. In the Cripps Case it was held that the renting of 14 two storey townhouses was not a business. Similarly in Cases 24 and 26 the renting of 22 units and three properties respectively was also not considered a business.

Since the construction of the house was completed you have used the Property for the purpose of providing short-term accommodation. Person B does not have any other employment.

As stated above, whether an activity of letting of property amounts to the carrying on of a business will depend on the circumstances of each case as noted at paragraph 5 of IT 2423.

The scale of your activities and volume of operations can be distinguished from the cases noted above as there was only one property. Additionally, it cannot be viewed that your activities were of the same scale as the taxpayer in Case G10 who cleaned their property on a daily basis, showing potential visitors over their property, attending to the garden, repairs and maintenance on a seven day a week basis.

● Your short-term accommodation activities do not have the nature of a hobby or recreational pursuit and is similar to other property owners who are involved holiday letting.

Conclusion

After reviewing the information and documentation provided, taking all of the facts in TR 97/11 into consideration and on weighing the relevant business indicators and objective facts in relation to your situation, we have determined that you are not carrying on a business in relation to your short-term accommodation activities.

Your case can be distinguished from Cripp’s case as in that case the scale, being 16 townhouses, was far greater than in your one property. Despite the fact that 16 townhouses were rented the Administrative Appeals Tribunal (AAT) found that the taxpayers were mere passive investors and not in the business of deriving income from rental properties.

Similarly in Case 26, despite the scale of operations of 22 units, the AAT found a business was not being carried on by the owners of the block of flats. Again the quantity of rental units is far in excess of your one property.

You only have one property being used for short-term accommodation as opposed to the taxpayer in Case G10 who operated two properties with a total of six units. As outlined above, the scale of operations refers to the number of properties, rather than the frequency of tenancy.

The daily management of the Property is undertaken by Person B who travels to the Property on a weekly basis. Their activities include weekly inspection of the Property, replenishing supplies, record keeping, responding to visitor’s enquiries and administrative work. Many of their activities are considered similar to anyone owning a rental property that is located some distance away from where they reside.

While Person B travels to the Property to inspect it after the guests have left, it is viewed that this is simply the monitoring and maintenance of an investment from which income is derived. It would be considered normal for any owner of a rental property to inspect it after a tenant/guest/visitor had left the property.

The services provided in relation to the Property as outlined above may require some effort or attention by you, or on your behalf; however the services provided are not considered significant in terms of warranting payment additional to that for the visitors to stay at the Property. While you may provide some services for the visitors, these are small in comparison with the services provided in relation to the Property.

You receive payments for the use of the Property by visitors. It is essential that to be carrying on a business you have to do more than just let out the Property. Activities constituting the mere maintenance of an asset and the mere collection of income do not indicate the existence of a business. You charge $XXX per stay, being $XXX for service fees and $XXX for cleaning. It is viewed that these charges are in the nature of restoration charges to return the Property to the same position it was prior to the visitor’s arrival.

Though the activities may have been conducted in a systematic and organised manner, repetition or regularity by itself does not lead to a conclusion that the activities amounts to carrying on a business.

Activities such as the maintenance of accounting and bookkeeping records are relevant to any owner of an income producing investment property and are no more than any investor in real estate would do.

The services provided are similar to those noted in Case G10. However, you and your spouse’s, or the persons you engage, level of active involvement in relation the properties is significantly less than those noted in G10. In Case G10, their activity involved a significant amount of their time devoted to the holiday letting activity of two properties with six units. For example the cleaning of each flat on the average required two people each working for two hours. Other work the taxpayer had undertaken was the cleaning and maintenance of the garages and laundry and storage room. The taxpayer’s task in managing and maintaining the flats was, as he said, a “seven day a week job”.

You have landlord and home and contents insurance for the Property, with full disclosure to the insurer that it is used for self-managed holiday rental. However, it would be reasonable to expect owners of rental properties using their properties for holiday rentals to insure their investment properties using the same insurance policy.

Your activity is letting your property, maintaining your property and having it in a suitable condition so that it is available for visitors. The relationship is that of a landlord and tenant.

In conclusion, after looking at all the indicators and factors discussed above, you and your spouse are not considered to be carrying on a business of providing short term holiday accommodation for income tax purposes.

While the Property was constructed, and is being operated, in accordance with the conditions as outlined in the DA to be viewed as the providing of short-term accommodation on a commercial basis as defined by the Council’s Development Control Plan, for taxation purposes you are not viewed as carrying on a business in relation to your short-term accommodation activities.

You assert that you are operating your short-term accommodation activities on a similar basis to hotels providing short-term accommodation on the following basis:

● day-to-day management and guest relations provided by Person B;

● channel manager (software) is used for managing bookings and reporting information;

● multiple channels are used to generate bookings;

● a check-in check-out system is used;

● payment collection system uses credit cards;

● professional housekeeping and laundry service are provided;

● routine maintenance is undertaken by a caretaker and handyman; and

● kitchen and shower supplies are provided.

However, your activities can be distinguished from those of a hotel. The following reasons provide some examples of these differences:

● food is not provided in relation to your visitor’s stays, such a complimentary breakfast/s and/or dinners which are often included in the room fee;

● you do not provide food to visitors via room service or at eateries located in the hotel, such as in house restaurants/eateries;

● daily cleaning is not provided like in hotels where rooms are cleaned, including vacuuming and dusting, on a daily basis while the guests are staying there and not when the visitors have left as in your situation;

● you do not change linen on a daily basis but change it between the guests stays; and

● you do not replenish edibles, such as nuts, chocolates and chips, or restock the fridge with drinks on a daily basis.

The level of services provided for hotel guests is higher than the services you provide the visitors of your property and it is not viewed that your situation is the same as that of the activities being undertaken by a hotel.

In conclusion, after looking at all the indicators and factors discussed above, you are not considered to be carrying on a business of providing short term holiday accommodation for income tax purposes.

In accordance with the judicial comments above and guidelines set down in Taxation Rulings IT 2423 and TR 97/11, although there is some regularity to your activities, many of the activities undertaken in relation to the Property are services carried out in relation to owning a capital asset, such as a rental investment property, rather than services to visitors staying at the Property.

Therefore, based on the information and documentation provided it has been determined that the income that you receive from the Property is not received from the carrying on of a business; rather it is received as income from the renting out of the Property.

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