Private ruling: Carrying on a business - leasing property
Date of advice: 3 December 2025
Published: 27 January 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 202X

Ruling: Q1: Are you carrying on a business of leasing property pursuant to subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: Background Individual A and Individual B are the members of a Self-Managed Superannuation Fund (the Fund). Individual A & Individual B, (you), in partnership, jointly own multiple residential rental properties which they use in their property investment activity. Individual A and Individual B formed a partnership on the relevant date. Property details A summary of the property details is as follows: Table 1: Property details Property address Acquisition date Purchase price Property A Month 19XX $XX,000 Property B Month 19XX $XXX,000 Property C Month 19XX $XXX,000 Property D Month 20XX $XXX,000 Your primary residence is located across the road from some of the rental properties. A related entity operates its business activities from one of the rental properties. You have undertaken residential building works at Property C. A copy of the Complying Development Certificate and Occupation Certificate was provided with the application. In a previous income year, you developed Property D. The original structure was demolished, and a new structure was constructed. The cost of redevelopment was financed via a bank loan. A copy of the Development Application, Occupation Certificate, and approved plans was provided with the application. Activity details You have carried on your property investment activity for over X years. The activity was originally conducted as a rental property investment operation. During the relevant income year, the activity comprised of multiple tenancies across the rental properties. Copies of the tenancy agreements have been provided with the application. Property A and Property B are vacated in preparation for the commencement of building works. You directly manage Properties A and C. You engaged a managing agent to manage Properties B and D. The only property currently being managed by a managing agent is Property D. This property is expected to be managed by a managing agent while development of the relevant properties take place. You plan to self-manage all the properties once the developments are complete. Tenants for this property were chosen on the recommendation of the managing agent who interviewed prospective tenants. All tenants managed by you have been found through word of mouth. You have interviewed and selected the tenants based on the interview process. All lease agreements and rental bond registrations were carried out by you. No advertising was required. In the preparation and signing of leases, the relevant Fair Trading Residential Tenancy Agreement is used, and bond payments are registered through the relevant Fair Trading Rental Bond Online. No contracts have been breached or prematurely ceased. Any vacancy has been with notice as per the tenancy agreement and all parties have been notified with the minimum time frame outlined in the tenancy agreement. Rent charged is based on market value of similar properties in the area. Rents are all charged at market value and reviewed annually with the renewal of lease agreements. No professional advice is used for the letting process. You have experience in the activity as they have been leasing properties for more than X years. When required, they refer to the relevant Government rules and relevant Department of Fair Trading as a guide. A separate, dedicated home office is located at your primary residence where activities related to the rental properties are conducted. Individual A is a professional and carries on business activities. Individual B is an office administer in a business field. You engage in your property investment activity on a regular basis including on weekends. You manage most aspects of the property investment activity including arrangement of tenancies, collection of rent, responses to tenant requests, payment of outgoings, arrangement of repairs, and bookkeeping. Individual A occasionally attends to required repairs. Individual A spends an average of approximately X hours per week managing the property investment activity. When major events occur, such as the requirement for major repairs, you increase your weekly hours by X to manage the property investment activity. Individual A carries out formal inspections of all the properties once each quarter. A business plan has never been documented for the activity. Further development plans You intend to redevelop Property A and Property B to create a more tenancies for each property. You have obtained development consent from the relevant Council and drawn plans. A copy of the Development Approval and the approved plans were provided with the application. Estimated costs for the redevelopment of the properties will be financed by cash payments or financed by bank loan. The proposed commencement dates are expected after the outcome of this private binding ruling or later. Once the redevelopment of is completed, you plan to have additional tenancies in their activity. A cash flow forecast has been provided for the future income years. Proposed transaction You are considering a restructure, whereby Property A will be transferred to the Self-Managed Superannuation Fund (SMSF) associated with the members. Property A has not been transferred to the Fund. It will only be transferred if the outcome of the private ruling application is favourable. An independent valuation from a qualified valuer will be obtained at the time the Fund acquires the property. The current market value of Property A was provided. The entity that will undertake the development will depend on the outcome of the private ruling application, being either the Fund or the Individuals. Financial information - rental income from properties You keep reports in spreadsheet format and engage an accountant for the management of taxes of the activity. A copy of the rental ledgers and expenses statements for the relevant income years has been provided with the application. Your property investment activity generated a profit in the relevant income years. The gross income from the activity has been provided. Your capital expenses for the property investment activity, including the estimate current market value of the properties is provided with the application. A copy of the loan account statements was provided with the application. Income tax returns have been provided with the application.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 995-1 | Income Tax Assessment Act 1997 section 108-7


Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar. | No, you are not considered to be carrying on a business of leasing property. | Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' to include any profession, trade, employment, vocation or calling carried on for the purposes of profit, however, excludes occupation as an employee. | The term 'carrying on a business' is not defined in the ITAA 1997 and therefore takes its ordinary meaning. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production (TR 97/11) outlines indicators relevant in determining whether an activity constitutes a business for income tax purposes. While TR 97/11 addresses primary production, these indicators are equally relevant to non-primary production activities, including property leasing. | The factors outlined in TR 97/11 include: | • whether the activity has a significant commercial purpose or character; | • whether the taxpayer has more than just an intention to engage in business; | • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity; | • whether there is repetition and regularity of the activity; | • whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; | • whether the activity is planned, organised, and carried on in a businesslike manner such that it is directed at making a profit; | • the size, scale and permanency of the activity; and | • whether the activity is better described as a hobby, a form of recreation or a sporting activity. | Factors of carrying on a business: There are no absolute tests of what a 'business' is, in the ordinary sense of the word. In Evans v Federal Commissioner of Taxation, Hill J stated: | The question of whether a particular activity constitutes a business is often a difficult one involving as it does questions of fact and degree. Although both parties referred me to comments made in decided cases, each of the cases depends upon its own facts and in the ultimate is unhelpful in the resolution of some other and different fact situation. | There is no one factor that is decisive of whether a particular activity constitutes a business. As Jessel M.R . said in the famous dictum in Ericksen v. Last (1881) 8 Q.B. 414 at p. 416: | There is not, I think, any principle of law which lays down what carrying on trade is. There are a multitude of things which together make up the carrying on of trade. | Profit motive (but see cf. I.R. Commrs v. Incorporated Council of Law Reporting (1888) 22 Q.B. 279), scale of activity, whether ordinary commercial principles are applied characteristic of the line of business in which the venture is carried on ( I.R. Commrs v. Livingston (1927) 11 T.C. 538), repetition and a permanent character, continuity ( Hope v. Bathurst City Council 80 ATC 4386 at p. 4390; (1980) 144 C.L.R. 1 at p. 9; Ferguson v. F.C. of T. 79 ATC 4261 at p. 4264), and system ( Newton v. Pyke (1908) 25 T.L.R. 127) are all indicia to be considered as a whole, although the absence of any one will not necessarily result in the conclusion that no business is carried on. | In determining whether a taxpayer is carrying on a business, the indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the large or general impressions gained from looking at all the indicators and whether these indicators provide the operations with a commercial flavour. | Size, scale, and permanency of the activity: The size or scale of the activity is not a determinative test, generally the larger the scale of the activity the more likely it will be that the taxpayer is carrying on a business, however this is not always the case and a person may carry on a business though in a small way. | Significant commercial purpose or character: In showing that a business is being carried on, the taxpayer shall provide evidence that shows there is a significant commercial purpose or character to the activity. For example, that the activity is carried on for commercial reasons and in a commercially viable manner. | Intention to engage in business: Carrying on a business requires actual action and is not the mere idea or desire to engage in business. The extent of actions you have taken will determine whether you are carrying on a business. | Prospect of profit: In order to demonstrate your business of leasing property amounts to the carrying on of a business, you must demonstrate an intention of making a significant commercial profit. | Demonstrating the prospect of profit comprises of three elements: | • A genuine belief that profit is attainable; | • The intention to produce profits from the activities; and | • That the activities are capable of producing a profit. | It is not necessary for the activities to make a profit in every year of income. You may be carrying on a business even though you are making a small profit or loss in any given year. | Repetition and regularity: It is often a feature of a business that similar sorts of activities are repeated on a regular basis. The repetition of activities by the same person over a period of time on a regular basis helps to determine whether there is the carrying on of a business. | Activity carried on in a similar manner to that of ordinary trade: An activity is more likely to be in business when it is carried on in a manner similar to that in which other participants in the same industry carry on their activities. Lord Clyde in The Commissioners of Inland Revenue v. Livingston and Others (1927) 11 TC 538 at TC 542 said that: | ... the test, which must be used to determine whether a venture ... is, or is not, 'in the nature of trade', is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made. | In considering this indicator the following factors might be compared with the characteristics of others engaged in the same type of business: | • the types of customers the taxpayer sells their product to - wholesalers, retailers, the public at large, or friends or relatives - and the manner in which this marketing takes place; | • the sort of expenses incurred by the taxpayer; | • the amount invested in capital items; | • previous experience of the taxpayer. A taxpayer who does not have any knowledge or experience may be expected to have sought advice from experts. However, it is recognised that a taxpayer may be a pioneer in the industry. The taxpayer may have conducted research into the activity, decided that the traditional approach is wrong. They may be trying to conduct the activity with a view to profit in a new but businesslike way. | Planned, organised, and carried out in a business-like manner: In Newton v. Pyke (1908) 25 TLR 127 the court suggested that business should be conducted systematically. A business is characteristically carried on in a systematic and organised manner rather than on an ad hoc basis. An activity should generally conform with ordinary commercial principles to amount to the carrying on of a business. | In Ferguson v. FC of T (1979) 37 FLR 310; 79 ATC 4261; (1979) 9 ATR 873 the Full Federal Court was influenced by the systematic and organised nature of the taxpayer's activities. Fisher J said: | ... the venture as a whole had a commercial flavour, was conducted systematically and... in a business-like manner. It could not be said that there was anything haphazard or disorganised in the way in which he carried out the activity. | In Federal Commissioner of Taxation v. JR Walker 85 ATC 4179; (1985) 16 ATR 331 Ryan J was satisfied that the taxpayer was in the business of goat breeding as he had 'organised his activities in a business-like way through the keeping of books of account'. | The weight that is attached to this indicator will depend on the facts of the situation and a taxpayer may still carry on a business despite having poor organisational skills. | Indicators of carrying on a business of letting properties: In applying the factors of TR 97/11 to whether a taxpayer is in the business of letting properties, no single indicator is conclusive. Indicators suggesting a taxpayer is in the business of property leasing include activities that: | • resemble those of a professional property manager; | • are conducted with a clear profit-making purpose and reasonable expectation of profit; | • exhibit repetition and regularity; | • are organised in a businesslike manner with formal systems and records; | • are carried out in a manner characteristic of the property industry; | • involve a substantial portfolio or significant turnover; | • constitute a genuine commercial enterprise rather than a hobby. | Indicators of passive investment: Most taxpayers who let property are passive investors. These taxpayers will generally undertake activities in relation to the management of those properties much less frequently than a taxpayer who is in the business of letting properties. | The Rental Properties Guide 2025 confirms that most rental property owners are investors, not businesses. No single indicator is conclusive; the weight of each must be assessed collectively. These include, whether the taxpayer: | • relies on income from their job; | • leases the property for a purpose other than profit making; | • uses the rent money for non-rental related activities; | • provides additional services of cleaning, linen, concierge services; | • personally, manages multiple properties full-time. | Taxation Ruling IT 2423 Withholding tax: whether rental income constitutes proceeds of business - permanent establishment - deduction for interest (IT 2423) reinforces that scale and active involvement are key factors in determining whether rental income constitutes proceeds of a business. | Joint Tenants and Partnership: Section 995-1 of the ITAA 1997 provides partnership means an association of persons carrying on business as partners or in receipt of ordinary income or statutory income jointly; or a limited partnership. | Section 108-7 of the ITAA 1997 provides individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them had that interest as a tenant in common. | Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) provides for taxation purposes that joint tenants are co-owners. Co-ownership of rental property is a partnership for income tax purposes but is not a partnership at general law unless the ownership amounts the carrying on of a business. Where they simply derive rental income, they are not partners in a business. | In determining whether the respondent and his spouse in FC of T v McDonald (1987) 18 ATR 957; 87 ATC 4541 were true partners under the general law, Beaumonth J said at ATR p 968; ATC p 4550: | The reference to 'business'... indicates a 'commercial enterprise as a going concern': see Hope v Bathurst City Council (1980) 144 CLR 1 at 8; 12 ATR 231 at 236 per Mason J. Purely domestic transactions are thus excluded from the definition: see Fletcher, op cit p 28. The 'business' must be 'carried on'. This suggests some active occupation or profession: see IRC v The Marine Steam Turbine Co Ltd (1919) 12 TC 174 per Rowlatt J at 179.'...On the other hand, in the case of a private individual as distinct from a company, 'it may well be that the mere receipt of rents from properties that he owns raises no presumption that he is carrying on a business.' see American Leaf Blending Co Sdn Bhd v Director-General of Inland Revenue (1979) AC 676 per Lord Diplock at 684.' | Taxation Ruling TR 94/8 Income tax: whether business is carried on in partnership (including 'husband and wife' partnerships) (TR 94/8) provides factors to determine whether the parties are carrying on a business as partners. The existence of a partnership is a question of fact and requires evidence of mutual intention and conduct consistent with a business relationship. A partnership only exists if the co-owners carry on a business in common with a view to profit. | Application to your circumstances: Your rental leasing activity has a purpose of profit and is conducted in a systematic and organised way than most investors; however, your size and scale is consistent with that of an investor rather than one carrying on a business. The mere ownership of several properties, even where income is derived, will not itself constitute the carrying on of a business. | After considering and weighing of all the indicators, to determine whether you are in the business of leasing properties, to the facts and circumstances, the Commissioner is of the view that you are not carrying on a business of leasing properties in the 20XX-XX income year, but rather one of an ordinary property investor. | Question 2: Is the real property known as Property A business real property for the purposes subsection 66(2) of the Superannuation Industry (Supervision) Act 1993 (SISA) if acquired by the Fund from fund members at market value? | Invalid ruling question - Decline to answer. | A private ruling is unable to be provided for advice requests relating to the Superannuation Industry (Supervision) Act 1993 (SISA). | Detailed reasoning: Pursuant to section 359-5 of Taxation Administration Act 1953 (TAA), a private ruling is unable to be provided for advice requests relating to the Superannuation Industry (Supervision) Act 1993 (SISA). The SISA is based on the operations of self-managed superannuation fund regulatory law rather than tax law. | Accordingly, the provisions of the TAA do not allow the Commissioner to provide binding advice in the form of a private ruling. Section 359-55 of the TAA details the provisions of Acts and regulations of which the Commissioner has the general administration are relevant for rulings if the provisions are about those listed and the SISA is not one of them. | Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO (PS LA 2008/3) provides that some of the laws administered by the Commissioner do not enable advice to be provided in a legally binding form. For this reason, guidance has been provided to help the applicants understand their obligations and entitlements under the laws administered by the Commissioner.