Private ruling: Letting rental properties
Date of advice: 4 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you carrying on a business of letting rental properties? | A1: Yes.

Relevant facts and circumstances: The taxpayer and their spouse have had an ownership interest in multiple rental properties. The properties are owned by either, the taxpayer, their spouse, the taxpayer as joint owner with a relative or by companies fully controlled by the taxpayer and their spouse. All properties are administered by the taxpayer and their spouse as part of a portfolio of investment properties. Most properties are managed by real estate agents. Some properties are located in different towns and states. The remaining properties are managed fully by the taxpayer and their spouse. The agents are responsible for collecting rent, liaising with tenants and advising the taxpayer and their spouse of any necessary repairs or maintenance. The taxpayer and their spouse organise and coordinate the repairs by engaging the handyman or tradesman and purchasing capital items. They are undertaking a refurbishment process with all rental properties where they determine the refurbishment required, obtain quotes, purchase materials, co-ordinate tradesmen and are on-site during the refurbishment process. The taxpayer and their spouse have a business plan drawn up to assist in deciding which properties to purchase. In drawing up the plan they obtained advice from experts, researched and set benchmarks and considered the likely return from each prospective property. The intention of their rental property activity is to fund their retirement. The taxpayer and their spouse spend a substantial number of hours per week administering their existing properties, organising repairs and refurbishments, maintaining accounts and records, inspecting properties, searching for new properties to add to their portfolio.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as including any profession, trade, employment, vocation or calling, but not occupation as an employee. The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts provided. Taxation Ruling TR 97/11 provides the Commissioner's view of the factors used to determine if you are in business for tax purposes. 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 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 out 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 a sporting activity. No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression. A person who simply co-owns an investment property or several investment properties is usually regarded as an investor who is not carrying on a rental property business alone or with the other co-owners. This is because of the limited scope of the rental property activities and the limited degree to which a co-owner actively participates in rental property activities. Based on the information provided, it is considered that the taxpayer and their spouse's rental property activities are more than a passive investment. The activities they undertake, time spent and the number of properties involved, are sufficient to constitute a business. The taxpayer and their spouse are carrying on a business of letting rental properties for the year ending 30 June 2016.