Edited version of private advice

Authorisation Number: 1052090394893

Date of advice: 7 March 2023

Ruling

Subject: CGT - active asset

Question

Does the boarding house satisfy the active asset test under section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, your circumstances are similar to example 3 in Taxation Determination TD 2006/78 Income tax: capital gains: are there any circumstances in which the premises used in a business of providing accommodation for reward may satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 notwithstanding the exclusion in paragraph 152-40(4)(e) of the Income Tax Assessment Act 1997 for assets whose main use is to derive rent?, which considers a boarding house to be an active asset as the tenants do not have exclusive possession. Given the Property has been used in the business for the entire ownership period it will satisfy the active asset test.

This ruling applies for the following period:

Year Ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased the property for approximately $XX0,000.

The Property was sold for $X,XX0,000.

The rear of the Property consists of a large dwelling made up of 9 single bedrooms, with their own bathrooms, one common area consisting of kitchen, sitting/recreation room and laundry all available for tenant use.

The front of the Property also consists of a separate caretaker dwelling.

Tenancy agreements are short-term consisting on average between 1 to 3 months.

Tenants are required to sign a standard occupancy agreement upon commencement of occupancy.

Prior to occupation a full clean is undertaken and towels and linen are supplied.

You supply garbage bags, washing detergent and cleaning aids for occupants.

Occupants also have access to a coin operated washing machine, vacuum cleaner, ironing board, mop and bucket, etc as part of common facilities.

You pay for all utilities for the property including water, electricity gas and internet.

No reimbursement is sought from the occupants for the cost of utilities.

You provide a reception service available to the occupants should they require anything during their occupancy.

You have full rights to the rooms and apply rules on occupancy to provide a comfortable and enjoyable stay for occupants.

You are registered for GST.

The total income received from has always been far in excess of the income that would have been received under a normal tenancy.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 paragraph 152-40(4)(e)