Private ruling: Am I in business - short-term holiday accommodation
Date of advice: 18 September 2025
Published: 3 November 2025
Ruling period: Year ended DD MM 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Were you carrying on a business of providing short-term holiday accommodation? | A1: Yes. | Q2: Is the property considered to be an active asset under Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes. | Q3: Will you satisfy the requirements in section 152-105 of the ITAA 1997 to apply the 15-year exemption for the 50% interest in the property that you originally acquired? | A3: Yes.

Relevant facts and circumstances: Background You and your late spouse purchased a property over 20 years ago. You owned the property as joint tenants. The property was purchased with the intention of using it as your main residence as well as a licenced bed and breakfast. Approximately 6 months after purchasing the property, council approval was obtained to operate a bed and breakfast at the property. For over 6.5 years, your late spouse operated a bed and breakfast business at the property as a sole trader. During this time, the income and expenses related to the activity were disclosed in your late spouse's tax returns as business income. Your involvement was minimal during this period from an operations perspective as you were employed full-time outside of the business. You did provide your assistance with the business in accordance with your spouse's wishes as you lived together at the property. In MM 20XX the bed and breakfast business ceased. In MM 20XX, your spouse passed away. You resigned from your employment to care for your spouse after they were diagnosed with a serious illness. After your spouse passed away, you did not want to leave the house but needed an income stream. You decided to re-establish the bed and breakfast activity. You undertook renovations to the property to change the layout and update the property for the purposes of re-commencing the bed and breakfast. For a short period after the death of your spouse, you undertook temporary consulting and guest speaking in your area of expertise. This was temporary to supplement your income while the bed and breakfast was re-established. You started operating the bed and breakfast activity as a sole trader. All income and expenses relating to the activity were reported in your tax returns as business income. You operated for approximately 7.5 years. You continued living in the property as your main residence during this time. You ceased the bed and breakfast business. You planned to travel and decided to pause the bed and breakfast activity, given that it could not operate without you being onsite. You planned to continue running the business once you returned from travelling. You decided to rent the property in the meantime. The property was rented to a third-party via a real estate agent for 12 months. It was rented as a fully furnished home so that you could restart the bed and breakfast on your return. You travelled extensively between during this 12-month period. You returned to Australia and decided that you wanted to retire and not operate the business anymore as you wanted to travel more. The property was put up for sale and you resided there until it was sold. You did not own another main residence after the sale of the property. You moved into a retirement village. You are not working or employed in any capacity. You were over 55 at the time of the sale. The net value of assets owned by you, your affiliates and connected entities does not exceed $6 million. Bed and breakfast operation The property had x bedrooms, of which the bed and breakfast activity offered x large suites to guests. Guests also had the use of the main lounge and dining room, a day room, outside living areas and external decks. The property was able to accommodate up to x guests at a time. The property had a separate private bedroom and bathroom where you resided. This area was not available for use by guests. The house was extensively renovated and reconfigured to create spaces for guests. The property had street signage advertising the bed and breakfast, as well as a dedicated website, various booking and advertising websites, and social media. The bed and breakfast was advertised and available year-round during the years that it operated. You resided and worked in the property to facilitate the management and operation of the bed and breakfast activity. This included preparing meals, cleaning, and providing toiletries and general amenities for guests. You were responsible for bookings, checking guests in and out, and maintaining the property. The operation was reliant on you being onsite. The services that you provided to guests included provision of high-quality, fully serviced, private bedroom suites, full breakfast each morning, access to all communal areas of the property, providing local tourism information including places to visit and restaurant recommendations. Dinner was also provided occasionally. You had guest bookings during most weeks. The average length of the stays was 2-3 nights per guest. There was no formal lease agreement with guests given the short-term nature of the stays. Agreements with guests were based on the booking platform used by the guest to book their stay. Check-in and check-out times were stipulated for stays. Guests had the right to occupy the room during their stays. Guests were not required to provide any notice, as bookings were made in advance for a set number of nights. They were required to comply with the relevant check-out time. You maintained the right to enter the rooms. To maintain guest privacy, you limited entry to the rooms for maintenance only. You have kept receipts, quotes, invoices, and a diary as documentation as well as information relating to each booking while you operated the activity. You did not have a formal business plan, however, you knew that the business was viable given that your spouse had successfully operated the activity for a number of years in the past. The activity generated a profit in most income years of operation. You relied on the income from the activity as your main source of income, so the profit needed to be sufficient to support you when you ceased working externally. You had spent a lot of your career in sales and customer service tourism. You also observed and assisted your spouse with the operation of the bed and breakfast previously, so you had knowledge of the requirements for operating the activity. You attended marketing seminars to learn how to effectively market a small accommodation business. You also sought professional advice from your accountant and various local industry bodies.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 paragraph 152-10(1)(d) | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-40(1) | Income Tax Assessment Act 1997 paragraph 152-40(4)(e) | Income Tax Assessment Act 1997 subsection 152-40(4A) | Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 subsection 328-130(1) | Income Tax Assessment Act 1997 section 995-1(1)

Reasons for decision: Detailed Reasoning - Carrying on a business: 'Business' is defined under section 995-1(1) of the 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. No single indicator will be decisive in determining whether a business is carried on. The indicators must be considered in combination and as a whole. | Detailed Reasoning - Application to your circumstance: Purpose and prospect of profit • The activity was profitable in most years of operation. • You relied on the activity as your main source of income. • We are satisfied that you were operating a bed and breakfast with the purpose and prospect of profit. Repetition and regularity • The bed and breakfast service was advertised and available year-round during the years that it operated. • You had bookings during most weeks. • You operated the activity for a number of years. • The activity therefore demonstrated repetition and regularity during the years that it operated. Planned, organised and carried on in a business-like manner • You had a background in sales and customer service tourism. • You had observed your spouse operate the bed and breakfast activity in the past, which was successful. • You attended seminars related to marketing a small accommodation business and sought professional advice from your accountant as well as various local industry bodies. • You kept receipts, quotes, invoices, and a diary as documentation as well as information relating to each booking while you operated the activity. • This demonstrates that the activity was planned, organised and carried on in a business-like manner directed at making a profit. Carried on in a similar manner to other businesses of the same kind • You provided guests with ensuite rooms which were serviced daily as well as breakfast. • The property had street signage advertising the bed and breakfast, as well as a dedicated website, various booking and advertising websites, and social media. • Guests were stipulated with check-in and check-out times, which is typical for short-term accommodation stays. • We are therefore satisfied that you carried on the activity in a similar manner to other bed and breakfast businesses. Size, scale and permanency • Your property had x suites available for guests to book and could accommodate up to x guests at a time. • You operated the bed and breakfast for a number of years and conducted capital works to the property for the purpose of reconfiguring it for use by guests for the bed and breakfast activity. • This supports that the activity was being conducted at the size, scale and permanency of a commercially viable business. Hobby, recreation or sporting activity • You intended to make a profit from the activity due to the manner in which it was conducted. • There was no intention by you to be carrying on a hobby or recreation rather than a business. • The activity could not be better described as a hobby or recreation. Significant commercial purpose or character and intention to engage in business • The activity was carried on for the purpose of making a profit and was conducted in a commercially viable manner. In considering all of the above indicators, the overall impression of the activity is that there was a commercial flavour to it. There was therefore the intention to engage in business and a significant purpose or character to your bed and breakfast activity. The activity demonstrates the required business indicators. There was a commercial flavour to the activity, it was organised and conducted in a business-like matter similar to other businesses in the same industry, and it was profitable in most years of operation. The Commissioner is therefore satisfied that you were carrying on a business of short-term holiday accommodation. | Detailed Reasoning - Active asset test: To access the small business concessions under Division 152 of the ITAA 1997, you must first meet the basic conditions under section 152-10 of the ITAA 1997. In particular, paragraph 152-10(1)(d) of the ITAA 1997 states that the CGT asset must satisfy the active asset test. The active asset test is contained in section 152-35 of the ITAA 1997. The test is satisfied where an asset is owned for more than 15 years, and the asset was an active asset for a total of at least 7.5 years in the test period. Where an asset is owned for less than 15 years, it must be an active asset for a total of at least half the time in the test period. The test period begins when the asset was acquired and ends at the CGT event. Under subsection 152-40(1) of the ITAA 1997, a CGT asset is an active asset if it is owned and used, or held ready for use, by you, your affiliate, or another entity that is connected with you in the course of carrying on a business that is carried on, whether alone or in partnership. | Detailed Reasoning - Affiliates: The meaning of affiliate is set out under subsection 328-130(1) of the ITAA 1997. An individual is an affiliate of yours if they act, or could be reasonably expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of their business. Whether a person acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, depends on the circumstances of the case. Relevant factors include: • the existence of a close family relationship between the parties, • the lack of any formal agreement or formal relationship between the parties setting out how the parties are to act in relation to each other, • the likelihood that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements or legal or fiduciary obligations, and • the actions of the parties. There is a special affiliate rule for spouses under section 152-47 of the ITAA 1997. Your spouse is treated as your affiliate when working out whether the entity that owns the asset is an affiliate of the entity that uses the asset in their business. The rule applies where you are the owner of a CGT asset and the asset is inherently connected with a business that is carried on in an income year by another entity that is not your affiliate. | Detailed Reasoning - Main use to derive rent exclusion: There are exceptions to what can be considered an active asset. An asset whose main use by you to derive rent is excluded from being an active asset under paragraph 152-40(4)(e) of the ITAA 1997. Subsection 152-40(4A) of the ITAA 1997 provides that in working out the main use of an asset, you disregard any personal use or enjoyment of the asset by you and treat any use by your affiliate as your use. A relevant ATO view document to your circumstance is Taxation Determination TD 2006/78 Income tax: capital gains: are there any circumstances in which the premises used in a business of providing accommodation for reward may satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 notwithstanding the exclusion in paragraph 152-40(4)(e) of the Income Tax Assessment Act 1997 for assets whose main use is to derive rent? (TD 2006/78). TD 2006/78 discusses the circumstances in which a premises used in a business of providing accommodation may satisfy the active asset test, despite the exclusion under paragraph 152-40(4)(e) of the ITAA 1997. Whether an asset's main use is to derive rent will depend upon the particular circumstances of each case. In accordance with paragraph 22 of TD 2006/78, the term 'rent' has been described as follows: • the amount payable by a lessee to a lessor for the use of the leased premises, • a tenant's periodical payment to an owner or landlord for the use of land or premises, • recompense paid by a tenant to a landlord for the exclusive possession of corporeal hereditaments. The modern conception of rent is a payment which a tenant is bound by contract to make to his landlord for the use of the property let. If your premises are operated as a boarding house, the issue arises as to whether an occupant of part of the premises is a tenant or alternatively only a lodger/boarder with a licence to occupy. Paragraph 25 of TD 2006/78 states that ultimately this is a question of fact that depends on all of the circumstances involved. Relevant factors to consider in determining this question include: • whether the occupier as a right to exclusive possession, • the degree of control retained by the owner, and • the extent of any services provided by the owner such as room cleaning, provision of meals, supply of linen and shared amenities. If premises are leased to a tenant under a lease agreement granting exclusive possession, the payments involved are likely to be rent and the premises will not be an active asset. On the other hand, if the arrangement allows the person only to enter and use the premises for certain purposes and does not amount to a lease granting exclusive possession, the payments involved are unlikely to be rent. An example is contained in paragraphs 8-10 of TD 2006/78 which involves a situation where a boarding house will be an active asset: David owns an 8 bedroom property which he operates as a boarding house. He resides on the premises. Boarders enter into arrangements to occupy single rooms with the average length of stay being 4-6 weeks. No notice is required to quit the rooms. There are rules requiring visitors to leave the premises by a certain time and David retains the right to enter the rooms. David pays for all utilities (gas, electricity, water) and provides the following services and facilities to boarders: • room cleaning and general maintenance; • linen and towels; and • common areas such as a TV/lounge room, kitchen, bathrooms, laundry and a recreation area. In this example, the services and facilities provided to boarders are relatively significant and the average length of stay is relatively short. David retains a significant degree of control over the premises through being on the premises most of the time. The arrangements entered into indicate that those staying in the boarding house do not have the right to exclusive possession of a room but rather only a right to occupy the room. These circumstances indicate that the relationship between David and those staying at the boarding house is not that of landlord/tenant under a lease agreement. Accordingly, the income derived is not 'rent' and therefore the paragraph 152-40(4)(e) exclusion does not apply. If David's activities amount to the carrying on of a business, the boarding house will be an active asset under section 152-40 of the ITAA 1997. | Detailed Reasoning - Active asset test: For the purposes of applying the active asset test, each interest in the property is treated as a separate CGT asset. You acquired an original 50% interest in the property which you held for over 15 years. During this time, you operated the business for approximately 7.5 years. This means that this interest in the property meets that active asset test as the property was owned for more than 15 years and was an active asset for more than 7.5 years. You inherited another 50% interest in the property which you owned for less than 15 years. This interest also meets the active asset test as it was owned for less than 15 years and was an active asset for more than half of the ownership period. | Detailed Reasoning - Affiliates: Your late spouse was likely to be considered your affiliate under subsection 328-130(1) of the ITAA 1997 as it could be reasonably expected that they acted in accordance with your directions or wishes in relation to the affairs of the business during the time that they operated their business. Even if your spouse was not considered an affiliate under subsection 328-130(1) of the ITAA 1997, they would be treated as your affiliate under section 152-47 of the ITAA 1997. This is because you owned an interest in a property and the property was used in the course of carrying on a business by your spouse. This means that your spouse's use of the property for their business is also included for the purposes of applying the active asset test to your original 50% interest in the property. Your spouse operated their business for a number of years and the property was an active asset for over 15 years. | Detailed Reasoning - Main use to derive rent exclusion: The Commissioner is satisfied that you were in the business of providing short-term holiday accommodation, as answered in Question 1 of this ruling. If the main use of the property was to derive rent, it will be excluded from being an active asset under paragraph 152-40(4)(e) of the ITAA 1997. TD 2006/78 provides the relevant factors to consider in determining if the main use of a property is to derive rent. In particular, whether the occupier retains the right to exclusive possession of the premises, the degree of control retained by the owner, and the extent to which fees are charged for services provided must be considered. In Example 3 of TD 2006/78, the key elements that indicated that the property was an active asset were that the occupants did not have right to exclusive possession of the property and the fees that they paid included services provided to them. Your circumstances are similar to this example, as: • the accommodation you provided was short-term with no written lease agreement between yourself and guests, • guests were not required to provide notice and there were stipulated check-in and check-out times, • you retained the right to enter the rooms, • you provided services to guests including daily breakfast, cleaning, maintenance, as well as use of common areas including the main lounge and dining room, a day room, outside living areas and external decks. When considering the extent of the facilities and services you provided, as well as the significant control retained by you over the property, the Commissioner considered that the guests did not have the right to exclusive possession. Rather, they only had a right to occupy a room during their stays. This means that there was no landlord/tenant relationship between you and the guests. The income derived from your activity was therefore not rent. Accordingly, the exclusion under paragraph 152-40(4)(e) of the ITAA 1997 will not apply and the property will be considered an active asset. | Detailed Reasoning - 15 year-exemption: The 15-year exemption for individuals is set out under section 152-105 of the ITAA 1997. You can disregard any capital gain arising from a CGT event if the following conditions are satisfied: • The basic conditions under Subdivision 152-A of the ITAA 1997 are met, • The CGT asset was continuously owned by you for the 15-year period ending just before the CGT event, and • At the time of the CGT event, you were 55 or over and the event was in connection to their retirement, or you were permanently incapacitated. If you own separate interests in the same CGT asset and sell those interests together, the 15-year exemption applies only to interests in the asset that you have owned continuously for at least 15 years. | Detailed Reasoning - Application to your circumstances: You owned the original 50% interest in the property continuously for the 15-year period prior to the time of sale. At the time that you sold the property, you were over 55 years old. You have retired and are not working in any capacity, so the Commissioner accepts that the event was in connection with your retirement. If you meet the basic conditions under Subdivision 152-A of the ITAA 1997, you will therefore be able to apply the 15-year exemption to disregard any capital gain arising from the CGT event. The exemption does not apply to any interest you have owned for less than 15 years. This is because interests in an asset acquired at different times are treated as separate CGT assets. You will therefore not be able to apply the 15-year exemption to the 50% interest in the property that you inherited.