Edited version of your written advice

Authorisation Number: 1012776091528

Ruling

Subject: Rental properties

Question

Does the Commissioner agree that you are carrying on a business (as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)) of property ownership and management?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

• the application for private ruling, and

• the documents provided with the private ruling application.

You own a number of rental properties which are leased to unrelated parties.

The properties have continuously been used wholly and exclusively as residential rental properties, with the exception of one unit.

This unit was the main residence of you and your spouse for a period.

Since this time, the unit has been used as a rental property.

None of the rental properties have ever been managed by a real estate agent.

You, on your own, have at all times attended to all aspects of the management of the properties.

All of the properties have been acquired with bank borrowings.

You conduct these activities in a business-like manner and keep relevant records.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

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

The question of whether you are carrying on a business is a question of fact and degree. There are no rigid rules for determining whether the activity amounts to the carrying on of a business. The facts of each case must be examined. In Martin v FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551, Webb J said:

The test is both subjective and objective; it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and, as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained.

However, the courts have developed a series of indicators that can be applied to your circumstances to determine whether you are carrying on a business.

Taxation Ruling TR 97/11: 'Income tax: am I carrying on a business of primary production?' summarises these indicators. 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.

Having considered your circumstances and the factors outlined above, we accept that you are carrying on a business of property ownership and management.