Private ruling: Income - passive income from property
Published: August 2013
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the proceeds you receive from an item of property that you own be assessable as passive income? | A1: Yes. | Q2: Can you claim a deduction for the outgoings incurred in earning income from an item of property? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include 3 categories, namely income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: · Are earned · Are expected · Are relied upon, and · Have an element of periodicity, recurrence or regularity. You bought one dispensing machine and signed a contract to give the daily operation and management of the machine to the vendor. This meant that you were not actively involved in the income producing activity. You had limited control of the asset, its placement, maintenance and repairs. You were guaranteed a minimum monthly return on your machine regardless of the number of transactions which reduced/limited your ability or incentive to be involved in the daily operation or to improve the performance. The payments are expected (and perhaps relied upon) as your entitlement to the payment arises under the agreement. They also have an element of recurrence and regularity as they are paid monthly. | Detailed Reasoning - Conclusion: Based on the facts provided, you are passively receiving income from property. Passive income is assessable in the year it is derived. Your liability to taxation cannot be deferred, regardless of whether or not you have 'recouped' your initial investment. Accordingly, the monthly payments received by you are considered ordinary income and are assessable under subsection 6-5(2) of the ITAA 1997. You are entitled to claim the allowable costs of earning this income as a deduction.

Relevant facts: You purchased a dispensing machine. | You also signed an agreement with the vendor to manage the day to day operation of the machine. | According to the contract between you and the vendor, the vendor is, among other things, responsible for; | · the installation of the machine | · the payment of all charges and expenses in operating the machine | · providing maintenance of the machine | · providing insurance for the machine | · removing and relocating the machine at it's discretion | · paying you either a minimum monthly amount or a certain amount per transaction which ever is greater. | According to the contract you have agreed, among other things, to; | · use the vendor's services exclusively; and | · comply with all legislative requirements