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Edited version of your written advice
Authorisation Number: 1012840496420
Date of advice: 14 July 2015
Ruling
Subject: Am I in Business - rental properties
Question
Are you considered to be carrying on a business?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
As a part of a property management activity, you rent more than 25 properties to non-related third parties at commercial rates.
You act as property manager for all of the properties.
You organise repairs where necessary for all properties.
You keep sufficient financial records for the activity.
You advertise for tenants and organise the rental contracts for signing.
You collect rent and bond and lodge with the necessary authorities.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
Taxation Ruling TR 97/11 provides a guide to indicators that the courts have held to be relevant as to whether or not a person is carrying on a business. 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.
Whether a business is being carried on depends on the large or general impression gained (Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548) from looking at all the indicators of carrying on a business, and no one indicator will be decisive (Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922).
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 circumstances, the overall impression gained is that you are carrying on a business activity of letting property and property management.