Edited version of private advice

Authorisation Number: 1052014707356

Date of advice: 18 August 2022

Ruling

Subject: Am I carrying on a business - rental properties

Question

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 the entities 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 and are the same as similar businesses in this industry. You have been making a profit in previous years from the properties.

Note: your activity can change from conducting an investment to that of being in business and vice-versa over time, as your level of activity changes. You should evaluate your level of activity on a regular basis to see whether you are conducting an investment activity or carrying on a business.

Also note: individuals and trusts may reduce their capital gain by 50 percent if they have owned the asset for at least 12 months and are a resident for tax purposes. For more information on the CGT discount please visit the ATO website and use QC 66019.

If you are carrying on a business of buying and selling properties, then your assets would be considered trading stock and the trading stock rules would apply. For more information on trading stock rules use QC 51614.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The relevant entities own a significant number of rental properties.

The relevant entities have already begun and plan on pursuing the long-term plan of managing and maintaining the rental property portfolio as their primary income source.

There is a business plan which is to increase the number of income-producing assets on a yearly basis which will increase profits and also expenses. The relevant entities perform the majority of the repair and maintenance work on the assets themselves to reduce the overall expenses incurred by the assets.

All the properties are leased on long term arrangements and are managed by real estate property agents.

The property managers do not have authorisation to act independently. They serve only as the primary point of contact with tenants. Rent negotiations are discussed with the entities prior to being actioned.

There are separate bank accounts for the properties.

The administration of the property accounts is completed by one of the entities and they spend time every month on this. A significant amount of time is spent engaging in communication with the property managers in regard to management issues. There are financial records kept for each of the entities.

The entities are required to travel to visit these properties to perform inspections, carry out repairs and maintenance work. When the properties are outside of reasonable travelling distance, they require accommodation for the duration of the visit. When they travel for this purpose, they keep a detailed travel diary of events and expenditure.

The entities have plans to perform extensive work to all the properties over the next few years. They require these actions to take place to keep the properties in a liveable condition and maintain market value and maximise rental income per property.

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