Edited version of private advice

Authorisation Number: 1052034076167

Date of advice: 15 September 2022

Ruling

Subject: Am I in business - rental property

Question 1

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 property management business. The activity is undertaken on a continuous and repetitive basis for the purpose of profit. The activities are organised in a business-like manner, there is the keeping of records and the use of a system. Your business activities are characteristic of how ordinary businesses in the same industry are conducted.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

March 20XX

Relevant facts and circumstances

In XXXX, you purchased the property. You own 100% of this property.

•         The property consisted of XXXX units with long term leases and had tenants in place when purchased.

•         Most units are rented long term and the remainder of the units are available for short term accommodation. (Fluctuations between long- and short-term accommodation occur particularly over the summer period, if a tenant leaves, the unit may be offered as a short-term accommodation).

You and your spouse are tenants in common for your main residence. The whole property comprises of three floors. The flat under the main residence is self-contained, as is the short-term accommodation at the rear of the middle floor. The upper floor and most of the middle floor are used as residence.

•         Guests normally stay between three days and two weeks, but mostly 3-4 days.

•         In XXXX, in addition to the existing flat under the main residence, a further room was configured for short-term accommodation.

•         The guest accommodation options are fully self-contained accommodation, all linen, crockery, whitegoods and furniture are provided. Bathroom and kitchen consumables including tea, coffee and milk are also provided.

Both short term and long-term accommodation are advertised through Airbnb.

There is no partnership agreement with your spouse.

There is a business plan and home office.

You have retired from paid employment. A property manager has not been engaged for ten years. You spend approx. XX hours per week managing the properties.

You undertake tasks such as sourcing and interviewing prospective tenants and negotiating lease agreements (a copy of an agreement was provided). You manage tenants' issues, property inspections, ongoing cleaning, minor repairs, major renovations, (assist contractors), gardening, grounds maintenance and rubbish removal. You prepare budgets and cash flow projections to assist with financial management of the properties.

You are the primary contact for any building, electrical, and plumbing issues.

Short-term accommodation guests are greeted at the property. They are also provided with instructions in relation to access and departure.

Before COVID, property rental values were determined by market evaluation. Since COVID, you have been reluctant to change prices for humanitarian reasons. E.g., Most of your tenants are visa holding taxi / uber drivers, students, or working in retail. In XXXX, vacancy rates are extremely low and tenants are reluctant to move. You aim to resume market pricing for your apartments in the next 12 months.

Income generated from the rental activities has increased income from XXXX when you first purchased the property to XXXX. Rental fees are paid into your account and short-term accommodation is paid into a joint account.

Since 20XX, your spouse has also provided services with the rental activities. XXXX has an ABN specifically for her that she uses when providing rental services for the properties.

This is not a hobby, a form of recreation or sporting activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 995-1