Edited version of private advice

Authorisation Number: 1052092032443

Date of advice: 24 April 2023

Ruling

Subject: Business of leasing properties

Question

For income tax purposes are you carrying on a business of renting properties?

Answer

Yes.

Based on the information provided, the company and its economic owners own a number of rental properties and have actively managed and maintained the rental properties for a number of years. Having considered the relevant factors such as:

•         the size and scale of your activity of renting properties;

•         your profit motive or purpose;

•         the repetition and regularity of your activity; and

•         the systematic and organised manner in which your activity is being carried out;

the Commissioner accepts that you are, collectively, in the business of renting properties.

You should note, however, that if your level of activity changes in the future, that the status of your activity may change. You should reassess this status on an annual basis by considering (i) if your level of activity has changed and (ii) whether the status of your activity has changed to one where you are no longer in business.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The company's and its two individual shareholders A and B, who hold 100% shares of the company, own a large number of rental properties between them.

Individual A had a career in the building industry. They built most of the properties themselves some time ago to provide long term income for both of them. Rental income from the properties has been their primary and often only source of income for many years. They carried out activities associated with setting up this activity.

They have managed everything to do with the rental property themselves. In more recent times they have outsourced some of the general management to real estate managers. There were some activities that only these agents could do.

They tell the real estate managers what to charge and when to increase/decrease the rent. The real estate managers source tenants, prepare the legal documentation (leases) based upon their instructions.

Individual A spends an average of XX hours per week on rental property related matters including administration, maintenance, and repairs. Individual B spends XX hours per week mainly on bookkeeping, gardening, or cleaning. Tenants can and do contact them directly. Software is used to manage the accounts for the properties and numerous hours are spent each week maintaining records and other miscellaneous items to do with the properties.

They often attend the routine general inspections to undertake maintenance, and attend the inspections when the properties become vacant.

Records are kept by them for all the properties. They are all rented on a long-term basis. Almost all of the properties are within a short distance from where the individuals live.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-130