Carrying on a business of property rental
If you own property that you rent or let out, a recent case before the AAT should give you pause for thought about how adequate your record-keeping is, particularly in how the ATO interprets whether you are an investor or carrying on a business.
This issue is often raised when a client seeks to claim business related expenditure where the expenses may not be available to individuals earning passive rental income.
The taxpayer claimed that she was in the business of letting rental properties, and had been for some years previously. During the relevant period, she and her husband owned nine properties in various proportions. Her claims related, amongst others, to interest on borrowed funds, borrowing expenses, a trust, the managing of her tax affairs carried out by her husband, and gardening work carried out by her husband. She worked full time as a chemist.
The Commissioner characterised the taxpayer as an investor. At issue was whether the taxpayer was in the business of renting or letting property, whether the deductions applied, and whether the penalty imposed by the Commissioner should be remitted in full or part.
On the issue of carrying on a business, the Tribunal was only just satisfied that the taxpayer was carrying on a business.
It placed weight on the fact that the taxpayer actively supervised the real estate agents employed and regularly managed issues associated with the properties. This meant there was a discernable pattern of trading to their activities. The Tribunal raised concerns that the poor state of her record keeping may have brought into question this argument.
Interestingly, the Tribunal noted that the use of real estate agents did not preclude the taxpayer from carrying on a business of letting property where the taxpayer can prove an active involvement in managing the properties themselves.
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Last updated March 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.