If you're not in a property renovation business or intentionally entering into a profit-making activity, you may be still be a personal investor. This can be described as buying and renovating a property without the intention of selling it, but subsequently gaining a profit from its sale regardless.
Example: Personal investor
Doug is a sales representative. He gets an investment loan and buys a property that he intends to rent out. He wouldn't consider selling the property unless the price rose significantly.
The property requires renovation before it would attract desirable tenants. Doug renovates the property after work and on weekends. Over the period of the renovation, the real estate market booms and Doug decides to sell the property.
Doug would not be considered to be in the business of property renovation because:
- he didn't intend to make a profit from buying, renovating and selling the property when he bought it.
- he didn’t rely on the income of the sale to meet regular expenses, as he has income from his job.
- his renovation activities were not carried out in a business-like manner.
Doug didn't buy the property with the aim to sell it at a profit, and didn't carry out a one-off profit-making activity. Therefore, Doug is regarded as a personal investor.
However, if Doug, because of his success with this renovation (either in his own right or with another or others) was to then undertake another renovation similar to the first with the aim of achieving the same profit levels, he will be regarded as being in the business of property renovation.
End of exampleNote: If your circumstances are complex and you can't determine whether or not you're in a business or profit-making activity, or whether you have undertaken a substantial renovation for goods and services tax (GST) purposes, you can write to us and request a private ruling to determine how your income and expenses are treated for tax purposes.
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