Edited version of private advice

Authorisation Number: 1051974656600

Date of advice: 21 April 2022

Ruling

Subject: Am I in business? - rental properties

Question One

Are you carrying on a business (as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) of letting rental properties?

Answer

Yes.

It is considered that you are carrying on a rental property business, as the scale of your activities is significant, there is repetition and regularity of activities and a purpose of making a profit. The activities are organised in a business-like manner, there is the keeping of books, records and the use of a system.

Question Two

Can I claim associated travel expenses?

Answer

Yes.

You can claim your travel expenses in the following circumstances:

•         preparing the property for new tenants (except for the first tenants)

•         inspecting the property during or at the end of tenancy

•         undertaking repairs, where those repairs are because of damage or wear and tear incurred while you rented out the property

•         maintaining the property, such as cleaning and gardening, while it is rented or genuinely available for rent

•         collecting the rent

•         visiting your agent to discuss your rental property.

While eligible to claim travel expenses, you still can't claim for expenses such as:

•         your personal use of the property or for purely private purposes

•         carrying out general maintenance of the property while it's not genuinely available for rent

•         undertaking repairs, where those repairs are not because of damage or wear and tear incurred while you rented out the property.

This ruling applies for the following period:

XXXX

The scheme commences on:

XXXX

Relevant facts and circumstances

You do satisfy the less than $250,000 income requirement for NCL purposes.

The portfolio currently has XXXX investment properties.

You currently own rental properties which include XXXX houses and XXXX apartments.

There is a 50 / 50 ownership interest and a loan on all the properties.

All the properties have been held for more than XXXX years and were purchased between XXXX and

XXXX, the XXXX remaining apartments were built in XXXX.

You have a purpose of making a profit and the intention for all properties is to continue renting, repay mortgages, for a source of income in retirement.

The lease length for each property ranges from 6 to 12 months. XXXX of the properties have been leased to the same tenant for XXXX years.

You have a home office. You do not have a business plan.

XXXX sole source of income is from XXXX, XXXX is still employed in paid work.

XXXX devotes XXXX hours per week on the financial management and repair co-ordination activities.

XXXX also spends approximately XXXX hours per week on the same activities.

XXXX keeps all records and maintains documentation for accounting purposes and for the preparation of tax returns.

In agreement with the real estate agents, all maintenance and repairs for all the properties are done by you both or negotiated with trusted contractors to which you pay their accounts directly. You attempt to inspect each property at least XXXX a year with intermediary inspections performed by the agent.

You both undertake XXXX meetings to review portfolio and repair works, documented in the yearly financial diary. Recordkeeping involves maintaining Excel files to update rental incomings, outgoings, invoices, landlord insurances, all other outgoing payments, calculate deductions and to monitor the financial performance on each property.

All the properties are directly managed by real estate agents.

The real estate agents are paid XXXX% of the rent to manage the properties including tasks such as:

•         Property listing

•         Advertising on the internet, newspaper and shop window

•         Lease management

•         Rent collection

•         Inspections

•         Emergency repairs

You have previously exclusively managed your properties.

There is a banking structure that includes home loans and line of credits, credit cards and savings accounts for the multiple payments required at different times. The payments include; interest, insurance, local council fees, water charges, repairers' fees etc. All accounts are in both names.

The total amount of travel expenses you wish to claim for each of the XXXX financial years are XXXX. There will be an additional XXXX planned trips for repair work and inspections in XXXX.

From the appointment of the Body Corporate for your apartments, you have been acting as a Chairperson, Treasurer and Secretary at all the Body Corporate Annual General Meetings and you have been making all the decisions.

You designed and fully furnished all the apartments. You organise and coordinate all the maintenance and repairs for the buildings on behalf of the Body Corporate, by directly engaging the original builder. XXXX a year, you do the gardens, common grounds and maintenance for the apartment complex and provide receipts to the Body Corporate for reimbursement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 995-1