Private ruling: Business - am I in business - boarding house
Date of advice: 12 December 2025
Published: 2 February 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Do your activities in relation to the rooming house constitute the carrying on of a business? | A1: No.

Relevant facts and circumstances: Background Company A is the corporate trustee for Trust A. You purchased the Property. You constructed a rooming house containing 5 fully self-contained rooms, each with a kitchenette and private bathroom. Handover occurred on during the relevant income year. You have provided copies of the site plans and Certificate of Occupancy with your application. The local council classified the rooming house as Class 1B. This classification is the same as boarding houses, guest houses, and hostels. Rooming house details You conducted the rooming house activity for approximately 6 months. All rooms were occupied during this time. Each room was individually leased and the tenants were provided with fully furnished accommodation. As per relevant regulations, only 5 unrelated people could occupy the premises at one given time. Private studio rooms include: • Kitchenette with portable induction cooktop, fridge, microwave, kettle, pots, pans, cutlery, and crockery. • Queen bed with a table lamp. • Private bathroom and toilet. • Lounge area with a TV. • Air conditioning and ceiling fans. • Walk-in wardrobes. • Work or dining table with chair. • Private side-yard or courtyard. • Secure digital locks on each unit. Shared common areas include: • Oven and stovetop. • Washing machines. • Laundry powder. • Dishwashing liquid. • Vacuum cleaner. • Mop and bucket. • Clothes lines. • Laundry baskets and pegs. • Air drying racks. • Ironing board and iron. The tenants were charged based on the room size and view. The weekly rent charged was inclusive of all utilities and services, including electricity, water, internet, use of shared facilities, and linen. Parking was charged separately on a weekly basis. The length of stays were 3 months or 6 months, depending on the occupant's requirement. The average length of stays was 4 months. Lock pad codes were changed every time a tenant vacated. The tenants signed a Rooming Accommodation Agreement, rather than a residential tenancy agreement. You were responsible for cleaning and maintaining all common areas as the owner. You engaged the following third parties in relation to the rooming house activity: • Property management: monitored tenants and the premises, conducted advertising, prepared Rooming Accommodation Agreements, changed lock pad codes, and conducted entry and exit Inspections. The property manager was available 24 hours, 7 days per week. Time spent on the activity was between 2 to 15 hours per week. • Cleaner: cleaned common arears one day per week. • Gardener: mowed lawns and completed gardening once a month in winter, once a fortnight in summer. The property was advertised on various websites online. It was advertised as a rooming house room and advertised once a room became vacant. The website charges advertising fees to list the rooms when vacant. Letting fees were paid to the property manager. The property was cleaned once per week at a minimum. The property could also be cleaned at the request of tenants, who could contact the property manager and ask for the common areas to be cleaned. The tenants could request for their room to be cleaned at an additional fee. The property was inspected twice a week by the property manager. Tenants were to contact the property manager about repairs. The rooming house complied with applicable state legislation regarding boarding or rooming houses. Activity details You spent approximately 15 hours per week on the activity. You had a business plan, cashflow forecast, fire management plan, and followed council regulations and codes of conduct. You kept records including invoices, accounting software, property management statements, and rooming accommodation agreements. You had previous experience in leasing, real estate and property development, and property management. You did not conduct any other activities besides the rooming house activity during the relevant income year. The level of capital investment employed in the activity was $X to construct the building. You incurred monthly expenses of $X in relation to the activity. You have provided a copy of the profit and loss statement for Trust A. The rental activity made an overall loss during the relevant income year. The property was sold to a related entity at market value.

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

Reasons for decision: Detailed Reasoning - Carrying on a business: 'Business' is defined under section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). It includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. The Commissioner considers various indicators to determine whether a business is being carried as contained in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production ? (TR 97/11). Although this ruling discusses primary production businesses, the indicators can be applied broadly to all businesses. Paragraph 13 of TR 97/11 lists the 8 business indicators as follows: • 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. There are no hard and fast rules for determining whether a taxpayer's activities amount to the carrying on of a business. The facts of each case must be examined. 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 QB 414 at 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 ( IR Commrs v Incorporated Council of Law Reporting (1888) 22 QB 279), scale of activity, whether ordinary commercial principles are applied characteristic of the line of business in which the venture is carried on ( IR Commrs v Livingston (1927) 11 TC 538), repetition and a permanent character, continuity ( Hope v Bathurst City Council 80 ATC 4386; (1980) 144 CLR 1; Ferguson v. FC of T 79 ATC 4261), and system ( Newton v. Pyke (1908) 25 TLR 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 operation with a commercial 'flavour'. | Detailed Reasoning - Indicators of carrying on a business: Size, scale, and permanency of the activity Under paragraph 77 of TR 97/11, 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. Significant commercial purpose or character Paragraph 28 of TR 97/11 states that 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. The 'significant commercial purpose or character' indicator is closely linked to the other indicators and is a generalisation drawn from the interaction of the other indicators. It is particularly linked to the size and scale of activity, the repetition and regularity of activity, and the profit indicators. A way of establishing that there is a significant commercial purpose or character is to compare the activities with those of a taxpayer who is carrying on a similar activity that is a business. 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 ( Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497). 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. Under paragraph 47 of TR 97/11, this indicator is very important to consider. 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 Paragraphs 55 of TR 97/11 provides that 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. The degree of repetition or regularity of the activities is relevant to determining whether you are carrying on a business. While there is a need for activity, this may be satisfied even if the activity is relatively limited, irregular or has periods of inactivity. 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 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 volume of sales. • 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 and 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 Federal Commissioner of Taxation (1979) 37 FLR 310, 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 (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. | Detailed Reasoning - 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. | Detailed Reasoning - 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. 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. In Commissioner of Taxation v McDonald (1987) 15 FCR 172 ( McDonald ) the taxpayer and his wife owned 2 properties, one of which was let on a short-term basis to holiday makers, which were subsequently let through letting agents. The Federal Court considered that for a business to be carried on by owners of property, one would expect that they would be involved in providing services in addition to the process of letting property, not merely receiving payments for the tenants occupation of the property. It was considered that this was not a case of the active joint participation of parties in a business activity. In Cripps v FC of T [1999] AATA 937 the taxpayer and his spouse purchased, as joint tenants, 14 townhouses which they rented out. They also purchased a property which was used initially as a holiday home but was later periodically rented out. A further property was purchased for residential purposes. After a failed attempt to sell it, it was also rented out. The AAT found that the taxpayer and his spouse were passive investors and were not in the business of deriving income from rental properties. The number of the properties involved and the nature and extent of the services offered were key factors in this decision. In AAT case YPFD and FCT [2014] AATA 9 ( YFPD ), the following statement about the tests that are relevant when the issue involves residential rental properties was made: The Tribunal suggested in Shields v Deputy Federal Commissioner of Taxation (1999) 41 ATR 1042 and, more recently, in Smith and Commissioner of Taxation (2010) 79 ATR 934, that relevant matters might include: a. the nature of the activities and whether they have the purpose of profit-making; b. the complexity and magnitude of the undertaking; c. an intention to engage in trade regularly, routinely or systematically; d. operating in a business-like manner and the degree of sophistication involved; e. whether any profit/loss is regarded as arising from a discernible pattern of trading; f. the volume of the taxpayer's operations and the amount of capital employed by him; (by 'her' in the present case). In this case the applicant owned 9 rental properties managed through real estate agents but also spent time on a regular basis performing additional management activities and arranging maintenance. The tribunal noted that reliance on real estate agents did not preclude consideration of their being in business and, taking the volume of their operations into account decided in their favour. In Allen v Federal Commissioner of Taxation [2021] AATA 2768 ( Allen ) it was held the applicant was carrying on the business of letting rental accommodation involving 9 properties. The applicant had the purpose of maximising net rent, the capital invested was considerable, and they spent a significant amount of time managing their income-producing real estate assets, especially once they ceased employment. The activities undertaken were significant in nature and included the personal involvement of the taxpayer in the planting and maintenance of gardens, cleaning, property repairs and maintenance, lease preparation for and attendance to legal disputes, and extensive development of their existing holdings to accommodate more tenants. It was estimated that the development of their existing holdings would increase their annual rental income by $120,000. The AAT decision considered the extent and nature of their activity as well as their prospects for profit, and found their activities were more than that of a passive investor. In Case G10 75 ATC 33, the taxpayer owned 2 properties of which 6 units were let as holiday flats for short term rental. The taxpayer, with assistance from his wife, managed and maintained the flats. Services included providing furniture, blankets, crockery, cutlery, pots and pans, hiring linen and laundering of blankets and bedspreads. The taxpayer also showed visiting inquirers over the premises, attended to the cleaning of the flats on a daily basis, mowing and trimming of lawns, and various other repairs and maintenance. The taxpayer's task in managing the flats was a 7 day a week activity. The Board of Review held that the activity constituted the carrying on of a business. | Detailed Reasoning - Application to your circumstance: We have taken the following into consideration when determining whether you are carrying on a business in relation to the rooming house: Significant commercial purpose or character You have not expanded your letting portfolio beyond the one property. You did not increase your holdings at any stage and therefore the activity did not grow to be that of a commercial nature. The number of properties held is not in line with the numbers taken to be significant in the YPFD and Allen cases. The activity operated for approximately 6 months before you sold the property to a related entity. The small scale of operation indicates that there was not a significant commercial character to the activity. Purpose and prospect of profit The activity made an overall loss during the relevant income year, which was the first year of operation for the rooming house. The Commissioner accepts that your construction of the rooming house had a purpose of profit making and that the activity would have likely been profitable if it had operated longer. Repetition and regularity In the Allen case, the applicant was occupied for the larger part of their working week with their extended involvement in the management, maintenance, and further development of 9 properties. You advised that you spent approximately 15 hours on the activity each week. You engaged a property manager, cleaner, and gardener in relation to the rooming house. Your commitment to this activity is somewhat regular, but not to the same extent as that described in the Allen case. Carried on in a similar manner to that of the ordinary trade in that line of business An activity can more readily be recognised as commercial if it is of same kind and carried on in a similar manner to other businesses in the same industry. You focused on a single property asset of a likely high value to undertake your method of operating the activity. You did not offer in-house services such as those referred to in the McDonald case and considered one of the characteristics of rental letting businesses in that case. You did not carry out any services yourself, such as cleaning or gardening, which were carried out by third-parties you engaged. Your actions and involvement did not go beyond that of an investor. As noted in YFPD , the choice of management in the first person or through an agency is immaterial to the decision on whether someone is in business. In your case, however this choice will have implication for costs which may impact the viability of your activity. If an operation is dealing in smaller volumes, it is less likely that a business is being carried on. The rooming house containing 5 tenancies is insufficient to be carried on in a similar manner to that of the ordinary trade of a business of letting properties. You do not provide daily cleaning while guests are in residence, nor do you provide personal services to guests while they are staying in the property. The services you provided did not extend beyond what is expected of a prudent property investor to keep their investments properly maintained. Planned, organised, and carried on in a businesslike manner An activity can more readily be characterised as a business when it is carried on in a planned, organised, and businesslike manner such that it is directed at making a profit. You manage your records systematically so that you can monitor income and expenses and meet your legal obligations. This is what is expected as an ordinary investor to maintain their property. Size, scale, and permanency An activity would be expected to be of a size, scale, and permanency suitable to the industry it is operating in to be recognised as a business. With entire ownership of the property, the size of your portfolio and the scale of your activity is not consistent with that of a business. There is no evidence of permanency as you only operated the activity for 6 months before selling the property to a related entity. As noted above you are not operating on an ample scale similar to those in YFPD and Allen , both of whom were considered to be in business with 9 properties apiece. Hobby, recreational or sporting activity Your activities would not be better described as a hobby, recreation, or a sporting activity. Conclusion Your activity is more consistent with that of an investor than one carrying on a business of letting property. You maintained one rooming house property for a short period of time, which involved X tenancies. The activity you undertook in managing the rental and maintenance of the property was part time and consistent in nature with that undertaken by an investor.