Private ruling: CGT - small business concessions - active asset
Date of advice: 4 March 2024
Published: 15 April 2024
Ruling period: Year ending 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Are you carrying on a business of short-term accommodation? | A1: Yes. Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? (TR 97/11), provides the Commissioner's view of the indicators used to determine if a taxpayer is in business for tax purposes. Its principles are not restricted to questions of whether a primary production business is being carried on. After reviewing the information and documentation provided, taking all of the indicators in TR 97/11 into consideration and on weighing those indicators to your facts, we have determined that you are carrying on a business in relation to the accommodation activities. | Q2: Is the real property an active asset of yours under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes. A CGT asset will be an active asset at a time if, at that time, you own the asset and the asset was used or held ready for use by you, an affiliate of yours, or by another entity that is 'connected with' you, in the course of carrying on a business. Due to the level of servicing provided, the relationship with the guests is not considered to be that of a landlord/tenant arrangement under a lease agreement as the guests are not granted the right of exclusion possession. Accordingly, the income derived from the property is not considered 'rent' for the relevant period and the exclusion in paragraph 152-40(4)(e) of the ITAA 1997 will not apply. Consequently, the property is an active asset as it is being used by you in the course of carrying on a business of providing short-term accommodation.

Relevant facts and circumstances: You own a holiday apartments short-stay business including owning the real property from which the business is run. The property was purchased as an ongoing business (short term stay) for Person A to run and manage on a fulltime basis, with Person B helping on a part time basis Person A works permanently managing the holiday apartments, facilitating all bookings and enquiries, cleaning the apartments etc for short-stay travellers Person A manages all the bookings, either via phone, email or directly online through their, and liaising with guests regarding their arrival and departure. Services and amenities provided include: • a full-size kitchen with all kitchen appliances and pots/pans, cutlery, tea/coffee/sugar and milk supplied. • Unlimited Wi-Fi • Shared BBQ area, the use of which (gas and cleaning of the BBQ and area) is included in the cost of accommodation • Each apartment has its own laundry with full size washing machine and dryer with all bedding, towels and linen supplied. • Laundry services are provided, and linen is cleaned as required. • Sometimes room are cleaned during stays, particularly longer stays, as is arranged verbally with guests at check-in • Although there is not a designated reception area, guests all have Person A's contact details for any queries or issues during their stay It is a daily activity keeping up with the bookings, cleaning, etc. There is a fixed routine for bookings, cleaning, check-ins and check-outs All accommodation bookings are at arm's length terms and open to the public at competitive rates. There is no personal use of the apartments. The terms and conditions of the apartments state that: • They reserve the right to change the apartment during the stay if required. • The apartments may be accessed for cleaning. Servicing of apartments during the stay will occur as agreed at check-in, but not less than weekly. Formal notice is not required to enter the apartments, however as a matter of courtesy guests are liaised with either directly, or phone or message prior to entering an apartment during a stay. The majority of guests stay for less than a week. You utilise online accounting software for your recording keeping.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 subsection 995-1(1)