Edited version of private advice

Authorisation Number: 1052388115873

Date of advice: 24 April 2025

Ruling

Subject: CGT - small business concessions

Question 1

Was the partnership carrying on a business of short-term accommodation for the purpose of accessing Small Business capital gains tax (CGT) Concessions under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

It is considered that you meet the relevant factors contained in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?

Therefore, you are considered to be running a business for the purposes of determining whether you are eligible for the small business CGT concessions.

Question 2

Was the Property used in providing short-term accommodation an active asset of the partnership within the meaning of section 152-40 of the ITAA 1997?

Answer 2

Yes.

The property is an active asset of the partnership within the meaning of paragraph 152-40(1)(a) of the ITAA 1997, as it used while carrying on a business of providing short-term accommodation by the partnership. The exclusion in paragraph 152-40(4)(e) of the ITAA 1997 does not apply as the income derived is not "rent". This is because your guests do not have exclusive possession of the short-term accommodation but rather only have a right to occupy the short-term accommodation on certain conditions. The income derived from the activity is considered business income.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a partnership.

You purchased a block of land and built your home in which you still reside.

Whilst living in the area you have spoken with real estate agents and other locals related to tourist driven business if it was profitable to build short term accommodation.

After constructing your property, you purchased two additional blocks of land next to each other. You built free-standing four-bedroom homes designed to accommodate up to 20 guests.

The purchase and construction of the properties was funded by the sale of a previous company.

In the 20XX-XX financial year one of the properties was sold, the other property remains active. There are no plans to purchase new properties as the plan is to transition into retirement.

The properties are available for booking primarily through booking websites. There is a real estate agent that handles the bookings and oversees key collection and drop off.

There is a 2-night minimum stay, the rates are seasonable depending on different times such as school holidays, winter and summer.

All the properties are fully furnished including full linen, kitchen equipment, tea and coffee.

You take part in all aspects of managing the short-term properties including:

•                All external maintenance and landscaping,

•                Painting and repairs to internal and external areas.

•                Split wood supply for fireplaces

•                Purchasing supplies

On average you spend 16 hours per week on maintenance, purchasing supplies and management.

You have a property manager that is responsible for:

•                Advertising, bookings,

•                collection of accommodation receipts,

•                organising cleaning.

With transition into retirement the agent has been organising repairs as needed. The property manager is paid 15% of the accommodation receipts.

You have a separate transactions account set up for the income and expenses that have been generated by this activity.

You maintain all records and receipts to track expenditure and income via a software program.

There is no formal lease agreement between the guests and yourself apart for the terms and conditions provided by the booking providers. You are not considered to be a landlord.

The guests in the houses do not have exclusive possession of the property they stay in.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 26-31

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 995-1