Edited version of private advice

Authorisation Number: 1051791903593

Date of advice: 11 January 2021

Ruling

Subject: Am I in business

Question 1

Do your activities in providing short-term accommodation and related services constitute carrying on a business?

Answer

Yes.

Question 2

Are you entitled to apply the small business instant asset write-off under Subdivision 328-D of the Income Tax Assessment Act 1997 to assets costing less than $XXX acquired by XX Month 20XX by the partnership for use in the partnership's business?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 June 20XX

Relevant facts and circumstances

Both partners live in a house on a X acres property and have renovated a stand-alone cottage on the property to provide short-term accommodation and related services to the guests.

Your business model involves providing a rural escape with animals, whilst being close to the beach and a short drive from a city.

The cottage was on the property when you bought it a number of years ago. You have spent some money using a new loan to renovate it. Renovations were completed in Month X 20XX but due to Covid-19 restrictions your opening was delayed till Month X 20XX.

The property is owned X% in one partner's name and X% in another partner's name. The partnership was formed for this short-term accommodation enterprise, an ABN was obtained and the partnership was split X% to one partner and X% to another partner to reflect the time and effort each partner puts in the business.

The day before guests arrive, one of the partners sends a message with the address and code to gain access to the key lock box at the front door of the cottage. They also put a sign on the driveway just before they are due to arrive, directing guests and welcoming them to the cottage. After they have arrived, you remove the sign. With the key they can access the cottage at their convenience. When checking out of the cottage, they leave the key in the key lock box.

You have set up a new bank account for the enterprise.

You subscribed to an accounting software to track income and expenses and maintain a database of guests and repeat guests.

You built a chicken coop in front of the cottage so that guests can interact with the chickens and collect eggs. Over winter when the chickens do not always lay eggs, one of the partners places eggs in the coop when there are small kids staying over.

Once cash reserves build up further, you plan on getting more animals to improve the client experience of having a farm stay.

One of the partners does not do any other paid work. They spend at least a number of hours a week on duties such as the following:

•         A number of hours cleaning and washing when guests leave or when required during their stay (one of the partners has undertaken the Covid 19 cleaning course and you also charge guests a cleaning fee).

•         A number of hours washing sheets and towels.

•         A number of hours communicating with guests which includes communicating at the time of booking, communicating a week before to ask about their meal preferences, communicating a day before their arrival, a message after their first morning to check in on them, a final message when they check out to ask for a review. Each guest is also given a personalised letter which needs to be updated, printed and left in the cottage for each new guest.

•         A number of hours a week monitoring and updating your listing and changing prices according to demand.

•         Replenishing firewood after each guest and building a fire for their first night if required.

•         Ensure that the barbeque heater is clean and full of gas.

•         Leaving marshmallows and sticks for the fire pit.

•         A number of hours a week to purchase groceries as you provide bacon, eggs, milk, juice and coffee for each guest.

•         A number of hours a week to prepare a choice of home cooked meals and food ordered and to go to the shops to purchase groceries for ordered meals.

•         Visiting local businesses and tourist attractions and obtaining brochures for the cottage.

•         Providing advice to guests on various restaurants, attractions and lookouts.

•         A number of hours a week stocking the chickens' food and water, ensuring there are treats in the coop area for guests to feed chickens and cleaning chicken coop.

•         Introducing chickens to the guests' children and how to pick up the chickens.

The other partner averages a number of hours per week performing the following duties:

•         A number of hours to blow the driveway and courtyard the day before new guests arrive.

•         A number of hours to whipper snip and mow the lawn.

•         Chopping wood and keeping wood stack stocked as required.

•         A number of hours per week maintaining books and accounts.

There are no minimum or maximum periods for bookings but your rates vary and one of the partners changes them in line with demand. Your rate varies between $X to $X per night. Also the price increases if there are more than a number of guests. For each additional guest, you charge an additional $X per guest.

Out of the number of days that you have been allowed to operate, your cottage has been booked a number of nights to a number of different bookings.

The home cooked meals and cheese platters range from $X to $X.

The average number of nights guests stay outside of school holidays is for a number of nights but there have been multiple X to X night stays. Over the winter months you accepted a booking for a number of months.

You do all maintenance work including mowing, repairing things while guests are there and basic repairs when they leave.

You rent the cottage through an online platform which takes up to X% of the booking fees. Guests currently pay the platform. The money is released to you the day after the guests check in. The money is deposited directly into your separate bank account.

Once you have more funds, reviews and repeat customers, you will set up a website.

Since Month X 20XX your income from the enterprise has been around $X.

You are not registered for GST as you do not believe your income will be above $75,000 a year.

The online platform has their own insurance policy which covers you for third party claims of bodily injury or property damage. You also have landlord insurance.

You have set up a security deposit of $X which is processed by the online platform.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 328-180

Income Tax Assessment Act 1997 section 995-1