Private ruling: Am I in business - rental properties
Date of advice: 6 February 2026
Published: 30 March 2026
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

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

Relevant facts and circumstances: You have retired from paid employment, and your only other income is from a superannuation pension. You own three rental properties. Property 1 - Commercial Property (P1) • P1 is a commercial property with two tenancies. • P1 was acquired more than 25 years ago by you and your spouse. Upon acquisition, it was leased back to the vendors who continued to occupy the first-floor space as a residence and continued to use the ground floor as a business premises. • The current market value of the property is $X million. The original loan to purchase the property has been fully paid. • After 5 years, you and your spouse retook possession of the whole property. The first floor and part of the ground floor was extensively reworked to make it suitable for use as an office. You leased that space to a business in which you were a partner for 20 years, until your share of the business was bought out. • You continued on with your role as a landlord. You continue to lease the office space that business. • The remaining portion of the ground floor is currently leased to another business. Prior to that there were a number of other tenants. • You have never had to advertise for tenants of the renovated office space. Tenants for the ground floor premises have been secured by local real estate agents, which you have engaged. • In the case of each tenant, you have been required to generate new lease documents approximately every three years. • No property manager has been engaged for the property. • Rent is paid into your bank account by the tenants. • You are responsible for all the repairs and maintenance on the property and it the point of contact for the tenants. • You spend approximately 4 hours per week on P1 maintaining the outdoor area. • There have been improvements of $X on the property since the purchase date. • You undertake regular inspections of the property. • You determine the rents by the current market rate. The rents are updated on a yearly basis by CPI. • You keep books of account to record all rental activities of the property. • The original intention for the property was to generate a profit. This intention has not changed. • The 20XX rental property schedule showed a profit. • The 20XX rental property schedule showed a profit. Property 2 - Short-term accommodation (P2) • P2 is short-term accommodation. • P2 was purchased more than 15 years ago. • P2 was originally jointly owned by a Partnership between you and your spouse. Upon the death of your spouse their share passed directly to you. • The current market value of the property is approximately $X. The original loan to purchase the property has been fully paid. • P2 was first available for rent shortly after you purchased it. • No property manager has been engaged for the property. • You list the property for bookings online. • You manage the reservations and assist guests with check-ins, check-outs and onsite requests and all other matters. You do not meet the guests personally upon check in/vacating. • P2 was occupied an average of X nights per annum in the relevant financial years. The average length of stay of guest is about X nights. The bookings were spread across all the months of the year. • P2 is available for rental for the whole of the year. • You have a paid cleaner, who cleans only the interior of the property after the guests check out. • You restock with provisions. • You are responsible for all the repairs and maintenance on the property, which is now ageing and requiring frequent input. • You are the point of contact for the tenants. • You undertake regular property inspections of the property when guests vacate the property. • You spend about 5 hours per week on P2, undertaking various tasks to maintain the outdoor areas of the property. • The rent is paid into your bank account from the online platform. • You determine the rent by current market rate. • You keep books of account to record all rental activities of the property. • Your original intention for the property was to generate a profit. This intention has not changed. • The 20XX rental property schedule showed a small loss. • The 20XX rental property schedule showed a small loss. Property 3 - Residential Property (P3) • P3 is a residential property. • P3 was purchased more than 20 years ago. • P3 was originally jointly owned by a Partnership between you and your spouse. Upon the death of your spouse their share passed directly to you. • The current market value of the property is approximately $X. The original loan to purchase the property has been fully paid. • P3 was first available for rent shortly after you purchased it. • A real estate property manager is engaged for the property however you regularly consult with the property manager, and you are the first point of contact by the tenants for all maintenance matters. • The rent is collected by the property manager. • The property manager advertises P3 for rent in consultation with you. • The property manager draws up and negotiates the lease agreements with the tenants and vets the rental applications from potential tenants in consultation with you. • P3 is leased as a residential property on a 12-month basis. • You are responsible for all the repairs and maintenance on the property. • You spend about one hour per week on P3 tending to any maintenance matters and general attendances. • The property manager undertakes regular inspections in consultation with you. • You determine the rent by current market rate. The rent is updated on a yearly basis in consultation with the property manager. • You keep books of account to record all rental activities of the property. • Your original intention for the property was to generate a profit. This intention has not changed. • The 20XX rental property schedule showed a small profit. • The 20XX rental property schedule showed a small profit. You do not have a business plan for any of the properties. You keep a bank account for the rental properties in your own name, separate from personal income. You employ a bookkeeper and generate a monthly profit and loss statements. Your intention is to run the rental operations in a businesslike manner. You intend to keep updating the properties in order to continue to generate a profit. You spend 1-2 hours per week attending to bookwork, paying a cleaner, securing suitable insurance cover and paying premiums, paying rates and land tax, attending to tenants' requests/issues and general attendances. Your level of activity has increased post-retirement with your desire to generally improve the amenities of the properties and with a catchup of maintenance tasks which you lacked the time to attend to whilst you were in employment. You have an ABN.

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

Reasons for decision: Summary: A consideration of the indicators set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) in combination and as a whole, leads to the conclusion that you are not carrying on a business of letting rental properties. | Detailed Reasoning - Detailed reasoning: Under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) assessable income includes ordinary income. Ordinary income is defined in ITAA 1997 as "income according to ordinary concepts". Typical examples of ordinary income include salary, wages, dividends, rent, and proceeds from carrying on a business. Business is defined under section 995-1 of the ITAA 1997 to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Normally the receipt of income from the letting of property to a tenant does not amount to carrying on a business. Whether the activity of letting property amounts to the carrying on of a business will depend on the circumstances of each case. 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 scale of the rental property portfolio and the nature and extent of the involvement of the owner in the provision of services to the tenants of these properties. Taxation Ruling IT 2423 Withholding tax: whether rental income constitutes proceeds of business - permanent establishment - deduction for interest states at paragraph 5: A conclusion that an individual is carrying on a business of letting property would depend largely upon the scale of operations. An individual who derives income from the rent of one or two residential properties would not normally be thought of as carrying on a business. On the other hand if rent was derived from a number of properties or from a block of apartments, that may indicate the existence of a business. In Commissioner of Taxation v McDonald, B. D. [1987] FCA 318 (McDonald ) Beaumont J made a distinction between property investing and carrying on a business, noting that in the carrying on of a business involving property letting services of the nature of those offered by a boarding house would be expected. This was a significant factor in finding that the taxpayer and his spouse were co-investors in their 2 properties rather than in a business of letting rental properties. This being the case the tribunal affirmed that any assignment of profits or losses was a private arrangement between the parties and did not alter their respective obligations or entitlements for income tax purposes. In Cripps v. FC of T [1999] AATA 937 ( Cripps ) 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 Administrative Appeals Tribunal 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 Administrative Appeals Tribunal (AAT) case YPFD and FCT [2014] AATA 9 ( YPFD ), the following statement about the tests that are relevant when the issue involves residential rental properties was 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; 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 nine 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 $XX. The tribunal 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. The factors outlined in these court decisions are taken into consideration in the indicators set out in the Commissioner's view on whether a taxpayer is carrying on a business as set out in TR 97/11 . While written for primary producers, these indicators are the consolidation of many years of case law and have broad application over many industries. TR 97/11 identifies the following indicators for consideration in determining whether a taxpayer is carrying on a business for taxation purposes. • 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. In determining whether a taxpayer is carrying on a business, no one indicator will be decisive. 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 operations with a commercial flavour. | Detailed Reasoning - Application to your circumstances:: Intention to engage in business The intention of a taxpayer in engaging in an activity is a relevant factor, however a mere intention to carry on a business is not enough, there must be activity. In considering the intention of the taxpayer related considerations include whether the activity is preparatory or preliminary to the ultimate activity, whether the activity is better described as a hobby or sporting activity, and whether there is an intention to make a profit. Your activities can not be described as preliminary or preparatory, nor can they be described as a hobby. You have stated that it was always your intention when purchasing each property that it would generate a profit. However, this intention to generate a profit through the acquisition of properties to let is not sufficient alone to show an intention to engage in business. The intention to generate a profit is common between those engaging in property investment, and those carrying on a business of letting property. You do not have a business plan for your properties, and you have not grown your property portfolio for more than 15 years. These factors do not support a finding that there was an intention to engage in business. Purpose and prospect of profit There must be a purpose as well as a prospect of profit. This includes planning and activity that is directed towards making a profit and being able to demonstrate how that profit is to be made. You stated that your intention has always been to make a profit from your rental properties, and your properties have all been leased from shortly after their acquisition until now. You intend to continue updating the properties in order to continue generating a profit, and you also update the rents according to current market rates and CPI. Your income and expenses from the relevant financial years show that your activities have generated an overall profit in those years, with the majority of the profit being generated by the commercial property. The short-term accommodation property currently is not considered to be very profitable with the rental schedules showing a loss in both years. These factors show an overall purpose and prospect of profit. The facts demonstrate that your property letting activities as a whole currently generate a profit, and your intention is to maintain this profitability through the updating of the properties and the rent amounts. Although the purpose and prospect of profit have been demonstrated, and this is an important indicator, we consider this factor to hold less weight in cases where property letting is the activity. This is because investors who intend to derive and maintain income from their property investments can demonstrate the purpose and prospect of profit without carrying on a business. Repetition and regularity Activity must be undertaken on a repeated and regular basis, as appropriate to the industry, for it to be considered a business. You spend on average 10-12 hours per week on activities related to your rental properties. The majority of this time is spent maintaining the outdoor areas of the commercial property and the short-term accommodation. In addition to this maintenance, you regularly attend to bookwork, making payments for insurance, rates and land tax and the cleaner, and you address contact from the tenants and inspect the properties when the need arises. These activities are repeated, but the amount of activity is minimal. We do not consider your activity to be at level any higher than that which would be expected of a property owner investing time and effort into maintaining their investment properties to make a profit. Activity carried on in a similar manner to that of ordinary trade An activity can more readily be recognised as a business if it is of same kind and carried on in a similar manner to other businesses in the same industry. When comparing your activities to that of an established property management business, we consider that although you undertake some similar activities, the number of properties and the amount of time you spend managing those properties is considerably lower. In addition, the majority of your time week-by-week is directed towards the outdoor maintenance of your properties, whereas this activity would likely be out-sourced by a property management business, with more time devoted to other matters and for a higher number of properties. Planned, organised and carried on in a business-like 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 carry on your activities on a planned, organised and businesslike manner. You keep records, you have a separate bank account for rental transactions, and you produce monthly profit and loss statements. You hire a bookkeeper, a cleaner and property manager to assist with various aspects of your activities. Size, scale and permanency of the activity The larger the scale of an activity the more likely it will be that the taxpayer is carrying on a business. However, this is not always the case. The size or scale of the activity is not a determinative test, and a person may carry on a business though in a small way. You own three rental properties. One of the properties is commercial, with two long-term commercial leases. Two of the properties are residential, with one leased to tenants on a 12-month basis, and the other advertised on online for short term stays. The short-term accommodation property is available for bookings all year and was occupied on average X nights per year for an average stay of X nights during the relevant years. The initial total purchase cost of the three properties was $X and you have spent money on improvements throughout your ownership of the properties. Based on this information the size and scale of your activity is considered to be relatively small. The size and scale of your activity is similar to the one or two properties contemplated in paragraph 5 of IT 2423 which would not be thought of as the carrying on of a business. Significant commercial purpose or character 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. Based on the small size and scale, the lack of growth in your property portfolio, and the level of repetition and regularity of your activities, we do not conclude that they have a significant commercial purpose or character. Your activities in our view do not go beyond those of a property investor who, with the intention of gaining income from their existing investments, dedicates an appropriate amount of time to the organised management of their properties and undertakes the required maintenance activities using their own time and skill. Conclusion Based on the facts provided, your rental letting activity has a purpose and prospect of profit and is conducted in an organised and systematic manner. However, your activity has a small size and scale, a low level of repetition and regularity, shows little similarity when compared to property management businesses, and does not display a significant commercial character. Rather, your activities can be better described as those of a responsible and prudent investor who seeks to make a profit from their investment properties. Considering your activities as a whole and the application of the combination of factors provided in TR 97/11, the general impression gained of your operation is that you are not in the business of letting rental properties.