Edited version of your written advice

Authorisation Number: 1012846002042

Date of advice: 23 July 2015

Ruling

Subject: Are you carrying on a rental property business

Question:

Are you carrying on a business of operating rental properties, through providing student accommodation?

Answer:

Yes.

This ruling applies for the following periods

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

Over a period of time you have acquired full ownership or part ownership in a number of properties that have rooms rented out to individual students, with one of the properties also being rented as a commercial property.

You spend approximately 30 to 35 hours per week on running this activity.

Your duties include:

• advertising for lodgers

• preparing and signing accommodation agreements

• preparing room condition reports for the lodgers when they check in/out.

• organising building and equipment checks

• inspecting the lodging facility regularly for cleanliness and providing cleaning services

• providing the lodgers with information and being available for check ins

• carrying out other mandatory inspections in accordance with council requirements.

You have carried on the activity in a business manner keeping all necessary records and, a profit has been made from each property each year.

You also undertake some part time casual work, but this is approximately only a few hours per week with periods of up to two months with no work.

Relevant legislative provisions:

Income Tax Assessment Act 1997 section 995-1.

Reasons for decision

Summary

You are carrying on a business through renting out properties to students and providing management and cleaning services, plus renting to a commercial tenant. 

Detailed reasoning

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'.

Whether the letting of property amounts to the carrying on of a business will depend on the circumstances of each case (Californian Cooper Syndicate (Limited and Reduced) v. Harris (1904) 5 TC 159). Generally, a person who owns a property (or properties) that is (are) rented out is usually regarded as an investor, who is not carrying on a rental property business. This is because of the limited scope of the rental property activities and the limited degree to which the owner actively participates in the rental property activities.

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 incorporates the general factors.

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.

Applying the indicators to your circumstances

Over a period of time you invested a significant amount of capital into the activity and have selected properties in locations close to the TAFE or universities with the intention of renting them out to students and with the view to making a profit from renting and providing services.

You carry out a variety of duties on a regular basis which would indicate a hands-on involvement by you in operating the student rental properties. These duties exceed the role of that of a property investor. You spend 30 to 35 hours per week undertaking various duties in relation to running and maintaining the properties and you keep business records relating to the activity. The activity is of a substantial size and not a hobby or recreational pursuit. The nature of activity is similar to other property owners who are actively involved in letting out rooms for commercial purposes or a profit.

After weighing up the relative business indicators and objective facts in regards to your activity it is considered that you are carrying on a business activity of operating a business through your rental properties.