Private ruling: Am I in business - rental properties and travel expenses
Date of advice: 22 February 2024
Published: 8 April 2024
Ruling period: Year ended 30 June 2023
Date scheme commenced: 1 July 2022

Ruling: Q1: Am I carrying on a business of renting properties? | A1: Yes. Based on the facts provided, the number of properties held, applying the principles of Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? and the case of Allen v FC of T 2021 AATA 2768, we consider that your actions that you undertake in relation to the renting out of your properties are from carrying on a business of renting properties. Travel expenses necessarily incurred in relation to carrying on your business for the purpose of gaining or producing your assessable income are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Relevant facts and circumstances: You and your spouse first began your rental property activities over XX years ago when a unit was purchased. Your objective was to acquire affordable properties which would be easy to tenant and to repay the loans out as quickly as possible from your and your spouse's combined incomes. You initially used a rental property manager. You and your spouse commenced self-management of your rental properties. You continued to engaged agents to locate suitable tenants until you took over this role. You do not hold any formal qualifications as a real estate agent or property manager. You hold multiple properties. Your spouse passed away and full ownership of the jointly held properties was transferred to you. During this financial year you commenced long-term leave from your employment and eventually ceased employment. You fully self-manage your properties. You undertake the following duties and tasks: • Advertising all properties when becoming vacant. • Organising open inspections. • Interviewing prospective tenants. • Arranging lease documentation for properties. • Communication with tenants for all aspects of the property. • Liaising with tenants and qualified contractors for repairs works and upgrades. • Communication with other property owners within strata titled properties. • Attending body corporate meetings. • Communication with neighbours about communal issues. • All minor repairs and maintenance tasks including locks, painting, lights, screens, sprinkler repairs, and garden maintenance. • Coordinate tradespersons for specific works involving electrical, plumbing and qualified works as required. • Purchasing most items for fit-out by trade persons and all other repair and maintenance tasks. • Most of the gardening, mowing, and palm frond/refuse removal to the council tip. • Three monthly inspections for all properties. • Interim drive-by inspections. • Check and record weekly rental receipts and payments. • Payment of all bills associated with properties. • Follow up any rental arrears. • Working out budgets and costings for any major works. • Reading associated documentation and ensuring adequate coverage for insurances is maintained. • Where necessary, apply and attend any tribunals for serious tenancy issues. • Maintain appropriate taxation records, including capital gains and costs, and separately calculate income and expense for each property as a guide to the properties' performance, collated monthly and presented to your tax agent annually in a spreadsheet format. The work required is quite fluid depending on any emergencies or vacancies. But there is also regular activities undertaken to ensure the properties are well maintained and presented at all times. Time to undertake work are generally: • Lawn-mowing 4-6 hours a week. • Ancillary gardening 3-4 hours a week. • If renovating and refurbishing long days of up to 10 hours for 2-4 weeks depending on the extent of works being undertaken. Cleaning walls floors and repainting, patching and replacing door handles, hinges and knobs, reseating water taps, pressure cleaning driveways, clearing guttering, and checking items are in full working order with any touch-ups as required. • Where only minor work is required prior to locating new tenants 5-6 hours a day for the week prior to open inspections is generally required. This allows time for advertising and property management as well. • Inspection times are 4-5 hours a day for one week and allowing additional time for completion of application paperwork, follow up phone calls and emails of a minimum of one hour a day. The work undertaken also includes weekends. You state you average around 2-3 hours a day and 4-5 hours on the weekends. You engage qualified tradespersons as required for any installations such as air conditioners, stoves, fans, hot water systems. You are comfortable with the size and scale of operations and have no immediate intentions for change or growth. To advertise your properties you use online sources and an open inspection billboard. Clearing the debt left properties positively geared as rental returns are generally robust in your city. You have made profits in the last few years. Prior to ceasing employment, it was evident the properties were generally sufficient income and self-management further reduced costs and ensured profitability. Property pricing is available online to ensure pricing is consistent with market rates. Lease agreements do contain clauses for rental review on renewal, which is an industry practice. Your tenants generally renew their lease contract. Contracts are generally for a 12-month period and are generally re-signed once a year. Properties are usually rented out within 1-2 weeks of becoming vacant. The only exception is where renovations are required to the property and the property is required to be vacant while they occur. The age of properties and the length of time they have been rented are sizeable. Each year one property is generally focussed on for a refurbishment. Refurbishments are co-ordinated carefully that the property is available for rent as soon as possible. During the relevant financial year the properties were fully tenanted. Your objective is to maximise your income. You provided a one month diary logbook of the work undertaken, which included the location of the property, distance travelled, work undertaken and length of visit. Recorded mileage was provided. The majority of properties purchased are very close to your home. Return trips are mostly of short duration. You provided the income and expenses, including travel costs, and net rent for your properties in the relevant financial year. Weekly review of rental property market information is gleaned from local newspapers and real estate advertising materials online as well as offline. For your activities you have a separate room set-aside and used for all office work at your home. A diary is maintained with key dates like end of tenancy, formal inspections due and open home viewings. Regular maintenance is also included in the diary. Other events are undertaken as needed but may revolve around likely vacancy dates so any major refurbishment works can be undertaken during a period when the property was becoming vacant. Major works are generally self-funded from cash flows within business operations, as properties have been positively geared for the past several years.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1