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Edited version of private advice
Authorisation Number: 1051559939337
Date of advice: 2 August 2019
Ruling
Subject: Am I in business?
Question
Are you in the business of renting properties?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You and your spouse have a partnership.
You and your spouse own 8 rental properties.
You and your spouse carry out the following tasks in relation to the properties:
- securing tenants by performing interviews of all prospective clients
- preparing paperwork and make contact to arrange for signing of all leases,
- prepare notices, advices for rent increases, entry requests for inspections,
- arrange property maintenance and smoke alarm testing
- complete all paperwork & lodge with the relevant authority
- collect all rental income and bond income for lodgement with the relevant authority
- attend relevant seminars regarding managing rental properties
- attend to regular inspections
- attending to mowing, pruning, and replanting of gardens
- attend to all cleaning of driveways, patios, paths and exterior walls with a pressure cleaner
- provide own equipment including truck, trailers, chain saws and building tools for the maintenance of the properties
- undertake final cleans and inspections of properties including preparation of required condition reports including being available for key changeovers
- on call to the tenants who contact the partners directly for required maintenance including providing keys if tenants lose theirs
All maintenance is carried out by you and your spouse unless a professional is required.
You and your spouse live locally so you can maintain the properties yourself.
You use to be a builder so you can do a lot of the maintenance yourself.
You and your spouse have no other source of income.
You and your spouse spend about 2-3 days a week carrying out tasks for the properties.
Each property is generating a profit.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 995-1
Reasons for decision
Section 995-1 of the TAA 1997defines '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.