Private ruling: Am I in the business of letting rental properties?
Date of advice: 17 March 2016
Published: May 2016
Ruling period: Income year ending 30 June 2016.
Date scheme commenced: 1 July 2015.

Ruling: Q1: Are you carrying on a business of letting rental properties? | A1: No.

Relevant facts and circumstances: Documentation provided with this private ruling should be read in conjunction with, and forms part of the scheme of the arrangement that is the subject of this private ruling. You solely own, or jointly own/ed, the following properties: Property A Ownership interest Jointly owned with your spouse Purchase contract signed 2001 Date of settlement 2002 Purchase price Over $100,000 Tenants Tenants resided in this property for total periods between 13 months and 42 months Capital works/improvements Fully painted inside and outside, new carpets in bedrooms, new linoleum throughout, split system air-conditioner, dual exhaust/heater in bathroom, exhaust fan in kitchen, glass shower screens, blinds, fencing and gate for portion of property, tree removal, toilet, washing line and gardening. Property B Ownership interest Jointly owned with your spouse Purchase contract signed 2003 Date of settlement 2003 Purchase price Over $120,000 Tenants Tenants resided in this property for total periods between 6 months and over five years Capital works/improvements Fully painted inside and outside , new carpets in bedrooms, new linoleum throughout, new bathroom, new kitchen, light fitting throughout, door handles, tiling in laundry and toilet, tree removal, washing line, retaining walls in backyard and side of property, replaced fencing for portion of property, blinds, hot water system, Perspex on back room and security doors and screens. Property C Ownership interest Jointly owned with your spouse Purchase contract signed 2008 Date of settlement 2008 Purchase price Over $220,000 Tenants Tenants resided in the property for around two years Capital works/improvements Fully painted inside and outside, new carpets in bedrooms, new linoleum throughout, new bathroom vanity light fittings, new kitchen cupboards, sink and range hood, new gyrock in kitchen, light fitting throughout, door handles, linoleum in laundry, toilet, tree removal, washing line, driveway blinds throughout, hot water system, security screens and grass and plants. Sale of property 2011 Property D Ownership interest Solely owned Purchase contract signed 2011 Date of settlement 2011 Purchase price Over $220,000 Tenants Tenanted for periods over a total of 5 months Capital works/improvements New linoleum in patio, toilet, hot water system, blinds, oven, roof repointed, house repainted, garage roller replaced, fly screens for 3 window, repairs to leaking roof on three occasions and removal of 12 trees. Property E Ownership interest Solely owned Purchase contract signed 2011 Date of settlement 2011 Purchase price Over $320,000 Tenants Tenanted to the same tenants since 2011 Capital works/improvements Painting, new internal and back doors, hot water system, repairs to kitchen cupboards, stove and hotplate, tree removal, plants and garden. The following properties have mortgages: Address Mortgage amount Property A Over $100,000 Property B Over $150,000 Property D Over $340,000 Property E Over $320,000 You and your spouse have always managed and maintained all of these properties, including: • advertising the properties for rent dealing with enquiries and applications from prospective tenants • negotiating and administering rental contracts • repairs and maintenance. You and your spouse undertake all renovations, repairs and maintenance with the exceptions of electrical and plumbing repairs, or if the repair is urgent and you and your spouse are unable to attend to it yourselves within 24 hours, in which case a handyman will be organised • carrying out regular inspections. • You and your spouse undertake the inspections either separately or together, with the frequency of the inspections varying dependent on the tenants and the lease terms. Inspections are formally conducted at least once per year for long term tenants. Informal inspections are undertaken during the year in relation to maintenance issues, gardening, gutter cleaning, to meet tradesmen at the property or when they drive by a property on the way to your other properties. • New leases are always for a fixed term of three months. At the end of the three month period the property is inspected, and if satisfactory and the tenant wants to remain in the property, a periodic lease is signed, with three to six month inspections then conducted. • arranging finance for purchases; and • maintaining separate accounts for the properties and maintaining records. • The tenants directly deposit the rental amounts into your bank account. When tenants are late in depositing the rental amounts, you or your spouse will attend the property to collect the rent, service notices of default or serve Court documents to enforce collection or evict the tenants. • The bank account where the rental amounts are deposited is a separate account which is used only for your rental property income and expenses and not for personal banking. The account is in you and your spouse's names with internet banking and transfers. You keep the following records in relation to each property: • monthly cash flow statement • yearly cash flow statement • inspection reports • insurance details • future expenditure plans • Excel spreadsheet of all costs for tax return purposes • Tax receipts • Repairs and maintenance; and • Communication log. Jointly, you and your spouse spend on around 12-15 hours per week on the rental properties, which varies on a weekly basis depending on your circumstances such as the type of work being done and when it has to be done. Generally, the work is shared between you and your spouse with the time being spent on the following activities: • Administration • reconciling the bank account about three or four times per week to document that rent has been deposited • paying bills • liaising with the water board and council • accounting/record keeping • contacting and liaising with tradesmen • purchasing supplies • advertising • phone calls, texting and communicating with tenants • photocopying and bookkeeping • liaising with mortgage broker in relation to loans • property valuations • internet research on current market trends • loan calculations • business knowledge • research on property business models • legal documents/court resolutions for bond dispersal/ property abandonment • lease and notices to tenants; and • property inspections and management duties • Renovations and maintenance • maintaining gardens • tree removal • trips to tip with rubbish • painting • liaising with tradesmen for renovations and repairs; and • gutter cleaning. You spend about 30 hours per week working on your full time employment and your spouse spends around 33.2 hours per week in their current employment which commenced in early 20XX, and prior to that about 13 hours per week. Your business plan in relation to the properties is as follows: • to acquire properties which could be: • firstly, used to earn rental income • secondly, develop the properties so that the rental income would be increased and profit would increase; and • thirdly, improve the value of the property so that the property could be sold and the proceeds used to acquire additional properties and more rental income and profit. • The plan was to acquire property which has the potential for development so that the rental yield could be increased, generating additional income and profit and increasing the value of the property • Your intention has always been to develop your properties with the objective of these becoming your main business activity and source of income in the future • You strategically planned on purchasing properties that would be in an area that was marked for future rezoning and had strong development potential in the future, whilst being in a socio-economic area that would ensure that the property would always be a viable rental property as it is at the lower end of the rental market • You ensure that the properties are clean, well maintained and in good working order for easy resale if the need arises • Property C was sold to free equity and allow the expansion of your property portfolio and opportunities by purchasing two more properties, being Property D and Property E • You purchase the properties based on the development potential market analysis of the current average wage and affordability of tenants, property location, proximity from your residence for repairs/maintenance and property management purposes and the surrounding infrastructure • You are currently waiting for the approval of re-zoning changes so you can commence on the next stage of your plan, being redevelopment; and • The properties have the following develop potential: • Property A - potential for four properties • Property B - potential for four properties • Property D - potential three-four properties; and • Property E - potential for three properties. You included rental loss amounts in the supplementary income section of your income tax returns for the income years 2001-02 to 2013-14 in relation to your ownership interests in the rental properties and a rental profit in the 2014-15 income year. You included the following rental income amounts in the supplementary income section of your income tax returns in relation to your ownership interests in the rental properties: Income year Rental Income 2001-02 Less than $ 2,000 2002-03 Less than $ 5,000 2003-04 Less than $ 8,000 2004-05 Less than $ 8,000 2005-06 Less than $ 9,000 2006-07 Less than $ 9,000 2007-08 Less than $11,000 2008-09 Less than $20,000 2009-10 Less than $35,000 2010-11 Less than $35,000 2011-12 Less than $50,000 2012-13 Less than $60,000 2013-14 Less than $60,000 2014-15 Less than $60,000

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Legislative references referred to herein are from the Income Tax Assessment Act 1997 (ITAA 1997) . The Commissioner considers you are not carrying on a business of rental properties. Whilst you and your spouse perform the activities required for the managing and maintenance of your rental properties, the scale of your activities and volume of operations is too small to be considered as carrying on a business. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(1) states that your assessable income includes income according to ordinary concepts. This 'ordinary income' includes amongst other things, income from salary and wages and business operations. Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. | Detailed Reasoning - Carrying on a business: Section 995-1 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. Normally the receipt of income from the letting of property to a tenant(s) does not amount to the carrying on of a business. Whether the letting of property amounts to the carrying on of a business will depend on the circumstances of each case. Generally, it is easier for a company that derives income from the letting of property to show that it carries on a business than it is for an individual. A person, who simply owns an investment property or several investment properties, either alone or with other co-owners, is usually regarded as an investor who is not carrying on a rental property business. This is because of the limited scope of the rental property activities and the limited degree to which an owner actively participates in rental property activities. A conclusion that an individual is carrying on a business of letting property would depend largely upon the scale of operations. If rent was derived from a number of properties or from a block of apartments, that may indicate the existence of a business. The issue of whether individuals are carrying on a business of letting property has been considered in a number of cases, some of which are discussed below. In Cripps v. FC of T 99 ATC 2428; (1999) 43 ATR 1202 (Cripps case), the taxpayer and his wife 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 Administrative Appeals Tribunal found that the taxpayer and his wife were mere passive investors and were not in the business of deriving income from rental properties. They rejected the taxpayer's argument that he had greater involvement with his 16 properties. In 11 CTBR (OS) Case 24 (Case 24) , the taxpayer's income included rents from three properties. The taxpayer employed a manager and an accountant - he was principally a letting clerk with authority to refuse tenants. He collected and banked rents, attended to repairs and supervised them, and controlled the caretaker and cleaners. He kept books in connection with rents and repairs, and rates and other outgoings. The taxpayer said he personally carried out the principal part of the management of his rent-producing properties and directed policy, attended to the financial arrangements and made decisions regarding repairs. The taxpayer claimed that he was carrying on a business. In holding that he was not carrying on a business, a majority of the members of the Board of Review said: It is obvious that some measure of supervision and management must ordinarily be exercised by a property owner who lets offices, &c., and if that does not amount to the carrying on of a business, the fact that he employs others to assist him, either in the letting of the properties or in the preparation of the accounts relating to his rents and outgoings, will not make any difference. For the foregoing reasons we are unable to uphold the claim that the taxpayer is engaged in a 'business as property owner'.... In 15 CTBR (OS) Case 26 , ( Case 26 ) the taxpayer derived income substantially from her joint ownership of a block of flats (containing 22 living units) with her sister-in-law. A swimming pool was shared with a neighbouring block of flats owned by the taxpayer's husband and his brother. A garden was maintained and a staff of one caretaker and one cleaner employed on both buildings with casual labour as required. The building was erected and financed by F & Co., the husbands of the joint owners, in the course of their business as building contractors. The general supervision of letting, rent collecting, servicing and maintenance was carried out by the owners or by F & Co. on their behalf. No charge was made by F & Co. for the extensive assistance given in the supervision of the flats. It was held that a business was not being carried on by the owners of the block of flats. On the other hand, Case G10 75 ATC 33 ( Case G10 ), the taxpayer owned two properties of which six 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 seven day a week activity. The Board of Review held that the activity constituted the carrying on of a business. Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioners view of the factors 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. In the Commissioner's view, the factors that are considered important in determining the question of business activity are: • 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 regularity and repetition of the activity • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as 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 sporting activity. TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case. In the Rental Properties 2015 guide (Rental Properties guide) published by the Australian Taxation Office the Commissioner sets out two examples that discuss the issue of whether or not the owner of one or more rental properties can be said to be carrying on a business. The first example, Example 4 on page 5 of the guide, outlines a situation in which the owners are not carrying on a rental property business. The Commissioner states: The Tobin's own, as joint tenants, two units and a house from which they derive rental income. The Tobin's occasionally inspected the properties and also interview prospective tenants. Mr Tobin performs most repairs and maintenance on the properties himself, although he generally relies on the tenants to let him know what is required. The Tobin's do any cleaning or maintenance that is required when tenants move out. Arrangements have been made with the tenants for the weekly rent to be paid into an account at their local bank. Although the Tobin's devote some of their time to rental income activities, their main sources of income are their respective full-time jobs. The Tobin's are not partners carrying on a rental property business - they are only co-owners of several rental properties. The second example, Example 5 on page 6 of the guide, outlines a situation in which the owners are carrying on a rental property business. The Commissioner states: The D'Souza's own a number of rental properties, either as joint tenants or tenants in common. They own eight houses and three apartment blocks - each block comprising six residential units - a total of 26 properties. The D'Souza's actively manage all of the properties. They devote a significant amount of time - an average of 25 hours per week - to these activities. They undertake all financial planning and decision making in relation to the properties. They interview all prospective tenants and conduct all of the rent collection. They carry out regular property inspections and attend to all of the everyday maintenance and repairs themselves or organise for them to be done on their behalf. Apart from income Mr D'Souza earns from shares, they have no other sources of income. The D'Souza's are carrying on a rental property business. This is demonstrated by: • the significant size and scale of the rental property activities; • the number of hours the D'Souza's spend on the activities; • the D'Souza's extensive personal involvement in the activities; and • the business-like manner in which the activities are planned, organised and carried on. As shown in the above cases and the views of the Commissioner listed above, the indicators with the greatest weighting are the scale or volume of operations and the repetition and regularity of the activities. | Detailed Reasoning - Applying the relevant cases and indicators to your circumstances: In many instances, it is obvious that an activity is being carried on as a business and no further investigation is required. Where it is less obvious, regard must be had for any other potential outcome when determining whether a particular activity should be considered to constitute a business and in determining the tests are to be applied in reaching such a determination. There are many decided cases that consider the issue where the potential outcome is between 'business or hobby' or 'employee or independent contractor' (with an independent contractor being considered to carry on a business). In this case, we are considering the question of 'Are you carrying on a business' with the other potential outcome being that the activity constitutes an investment that generates assessable income. Reference has been made in the private ruling application to Self-Managed Superannuation Funds Ruling SMSFR 2009/1 which outlines the Commissioner's views in relation to the term business real property in relation to self-managed superannuation funds for the purposes of the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations. It has been stated that your activities satisfy the criteria for the carrying on of business real property for Superannuation purposes. While we are not determining whether your activities are " business real property", Example 14 in the ruling is about a taxpayer who owns 20 residential units that are leased to long-term residents. The taxpayer manages the flats on a full-time basis living on the income generated from the properties. It is viewed that the taxpayer's activities are business real property. Based on the information provided, it cannot be viewed that your situation is similar the taxpayer provided in the example. The number of rental properties you own is significantly less, you have full-time employment and are not living on the rental income and your rental properties still have mortgages on them. Reference has also been made in the private ruling application to the recent Administrative Appeals Tribunal (AAT) case of YPFD and FCT [2014] AATA 9 (YPFD case) during which the following statement about the tests that are relevant when the issue involves residential rental properties were made: 16. 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). The decision made by the AAT in relation to the YPFD case is based on the plaintiff's facts. The Commissioner considers matters on a case by case basis according to the facts of that case. Therefore, we have taken the factors from TR 97/11 as outlined above into consideration and applied them to the facts of your situation when making our decision as to whether or not you are carrying on a business of letting your rental properties as follows: Significant commercial purpose 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. You solely own the following properties: • Property D - settlement on purchase occurring in 2011 • Property E - settlement on purchase occurring in 2011 You jointly own the following properties: • Property A - settlement on purchase occurring in 2002 • Property B - settlement on purchase in 2003 • Property C - settlement on purchase occurring in 2008 - sold in 2011 The properties are leased out for periods of between three to 24 months. The leases for new tenants are always for a fixed term of three months with a periodic lease then being entered into if the tenant is viewed as satisfactory and they want to continue living in the property. The tenancy agreements for the property located at Property B outline that the property has been rented out to the same tenant for three consecutive periods of two years. You have invested over $700,000 to acquire your ownership interest in the properties. The following properties have mortgages: • Property A • Property B • Property D; and • Property E. It is viewed that your activity is the renting of residential property. While the number of rental properties you own is more than in Case 24, it is significantly less than in the Cripps case and Case 26 when it was determined that the taxpayers were not in the business of letting rental properties. Intention of the taxpayer The carrying on of a business is not a matter merely of intention, it is a matter of activity. It is appropriate to look at when the activities started and whether they add up to more than a mere intention to conduct a business. You purchased your first investment property in 2002 and purchased the other properties over a number of years with the last properties being purchased in 2011. While you have stated that your purpose and intention over the years was to continue to increase the number of properties with the objective of producing a profit, the size and scale of your rental property activities has not changed since 2011, and you have not bought or sold any properties since then. Prospect of profits The taxpayer's involvement in the business activity should be motivated by wanting to make a tax profit and the taxpayer's activities should be conducted in a way that facilitates this. This will require examining whether objectively there is a real prospect of making such a profit from participating in the business of the taxpayer. The properties had earned gross rental income amounts of less than $2,000 to under $60,000 for the income years 2001-02 to 2014-15. Your property strategy is to acquire properties which will firstly be used to earn rental income and secondly to develop so that the rental income can be increased, and thirdly to improve the value of the property so that the property could be sold and the proceeds be used to acquire additional properties. You and your spouse had sold Property C and you had then solely purchased Property D and Property E. You have continued to own the jointly owned properties, Property A and Property B. While you have a profit making intention, your group of rental properties have not been profitable until the 2014-15 income year, and you have recorded a rental loss in your assessments for every year from 2001-02 until the 2013-14 income year . You intend developing some of the properties and are waiting for the rezoning changes to occur so that you can develop your properties. However, this strategy is speculative as to what will happen in the future. Repetition and regularity The taxpayer's activities should involve repetition and regularity and have an air of permanence about them. With regards to letting of properties, repetition and regularity may be measured by factors such as regularity of maintenance, collecting of rent, management and advertising of the properties, insurance, dealing with tenancy agreements and inspection reports. You receive rental income from your investment properties. You and your spouse undertake repair/maintenance activities yourselves with the exception of electrical and gas related issues to a professional, or if you are unable to attend to the issue within 24 hours in which case a handyman will be organised. You and your spouse spend around 12-15 hours per week on the rental properties in relation to the administration and repairs/maintenance activities in relation to the properties. The rental income is deposited directly into a nominated bank account. The level of repetition and regularity of you and your spouse in relation to the management and maintenance of the properties is not as great as that noted in Case G10 where the taxpayers rented out short term holiday units. The level of repetition and regularity of your activities is also not as great as that noted in Case 26 where despite the management and maintenance activities undertaken, the property owners were not considered to be carrying on a business of letting properties. Given the activities of other property owners who are considered to be carrying on a business of letting properties, it cannot be concluded that the level of repetition and regularity of your activities are the same. The overall impression is that you are not carrying on a business of renting properties. The income is derived predominantly from the letting of the property and not from activities 'carried on' in relation to renting the properties out. Activities of the same kind and carried on in a similar manner to those of the ordinary trade in that line of business If a taxpayer carries out their activity in a manner similar to other taxpayers in the industry, it is more likely that their activity amounts to the carrying on of a business. That is, the taxpayer's operations are of the same kind and carried on in the same way as those characteristic of ordinary trading in that particular line of business ( IR Commissioners v. Livingston 11 TC 538). This indicator requires a comparison between the activities of the taxpayer in question and those undertaken by a person in business in the same type of industry. Where the taxpayer's activities are similar in nature to the business, further support is given to the fact that a business exists. Generally, where the property owners grant exclusive possession of the property to the residents the relationship between the two parties is one of tenant and landlord, and the activity is more likely to be passive investment rather than a business. Similarly, activities constituting the mere maintenance of an asset and the mere collection of income do not indicate the existence of a business of renting premises. The documentation provided with the private ruling supports that your activity in renting out the properties is renting residential properties at market rates. Hence the relationship is considered to be that of a landlord and tenant. Organisation in a business-like manner, the keeping of books, records and the use of a system The activities conducted by, or on behalf of the taxpayer, should be carried out in a systematic and organised manner. This will usually involve matters such as the keeping of appropriate business records by the taxpayer. If the activities are carried out on the taxpayer's behalf by someone else, there should be regular reports provided to the taxpayer on the results of those activities. It is reasonable to expect anyone investing in rental properties, including passive investors, to keep records in relation to their rental property/ies so that they can keep informed as to whether or not they are making a profit in relation to the rental property/ies and to make decisions as to what activities to undertake in relation to their rental properties to maximise their returns. It would also be expected that anyone wanting to invest in rental properties would spend time researching real estate opportunities to determine a property's potential for rental income and capital growth. The size and scale of the activity When considering this factor, we are looking at the scale in terms of the number of properties and what management input that may be required to conduct the activity. The business should be large enough to make it commercially viable. In Cripps' Case , it was held that the renting of 14 two storey townhouses was not a business. Similarly in Cases 24 and 26 the renting of 22 units and three properties respectively was also not considered a business. You currently rent out properties which you jointly own and in which you have 100% ownership interest. As stated above, whether an activity of letting of property amounts to the carrying on of a business will depend on the circumstances of each case. It is apparent when compared to the above cases that your activity is not conducted on a sufficient size to be considered to be a business. It is not of a scale to take your activity beyond that of a passive income-producing activity. An ordinary business of managing rental properties would involve many more properties as indicated above. Hobby or recreation The activity does not have the nature of a hobby or recreational pursuit. The nature of the activity is similar to other rental property owners who are actively involved in some aspect of the property they own. | Detailed Reasoning - Conclusion: After weighing up the relative business indicators and objective facts surrounding this case it is considered that you are not carrying on a business of letting rental properties. While the management and maintenance of the properties is undertaken by you and your spouse, the level of repetition and regularity of the activity is not as great as that noted in Case G10 where the taxpayer rented out 12 units as short term holiday units. The activities of the taxpayer in that case was far greater than in your activities in relation to the four properties, being a seven day a week activity and the size and scale of the activities undertaken by the taxpayers. You solely own properties and jointly own other properties. Whilst you perform most of the activities required for the managing and maintenance of your rental properties, the scale of your activities and volume of operations is too small to be considered as carrying on a business as they are not extensive enough to amount to a business for tax purposes. Your case can be distinguished from Cripp's case as in that case the scale, being 14 townhouses, was far greater than your four properties. Despite the fact that 16 townhouses were rented the AAT found that the taxpayers were mere passive investors and not in the business of deriving income from rental properties. Similarly in Case 26, despite the scale of operations of 22 units, the AAT found a business was not being carried on by the owners of the block of flats. Again the quantity of rental units is far in excess of your four properties. Also, you circumstances are not similar to the examples provided in the Rental Property guide as outlined above. It would be reasonable to expect any property owner, either in general or a passive investor, to undertake any repairs/maintenance they have the capacity to undertake so that they do not have to engage the services of tradesmen. The undertaking of the repair and maintenance activities does not change the character of your rental property activities from investment to business. There is no evidence to suggest that the properties are rented as short term (nightly or weekly) rentals; rather, they are rented under lease agreements which are for periods from three months to 24 months. The relationship between you and the residents of the properties is that of a landlord and tenant; where the tenants have exclusive possession and control access to and from the properties. We acknowledge that you carry out research prior to purchasing a property, however we would consider it to be a normal expectation that anyone wanting to invest in a rental property to undertake some sort of research to ascertain the expected returns in relation to the property for potential rental income and capital growth. It is reasonable to expect anyone with an investment property, either as a passive investor or in business, to keep records in relation to their rental property/ies to enable to determine how their investment is going. Based on the information and documentation provided, it is the Commissioner's view that your rental property activities are better described as leasing residential properties to receive income from a stream of rental income. The income is not derived from the services you provide, but from the letting of the properties. The activities of a taxpayer may change from year to year, or even during the income year, which may change them from being passive investors to carrying on a business of letting rental properties. However, it is viewed that your activities in the income year covered by this private ruling support that while you own two rental properties, and jointly own two other rental properties, you are a passive investor. Accordingly, it is the Commissioner's view that you are not carrying on a business of letting rental properties and are a passive investor with a number of rental properties.