Common rental arrangements
Common rental arrangements include where you:
- rent part of the property (rent out a room)
- rent the property for part of the year
- have a domestic arrangement with family members (meaning, you receive payment for board and lodging)
- rent the property to your family or friends
- rent your property consistent with normal commercial practices (arms-length arrangements).
Find out more about Rental income you must declare.
Rental investors
Most owners are investors who are not in the business of letting rental properties, even where they own more than one investment property. This is because they:
- have minimal involvement in rental activities (such as, interviewing potential tenants or inspecting the property)
- still rely on income from other sources, like their job.
Carrying on a business of letting rental properties
Your income from the letting of property to a tenant, or multiple tenants, will not typically amount to the carrying on of a business, as such activities are generally considered a form of investment rather than a business.
As the owner of rental properties, some of the factors that show you are carrying on a business of letting rental properties are the:
- significant size and scale of the rental property activities
- significant number of hours spent on the activities
- extensive personal involvement in the activities
- business-like manner in which the activities are planned, organised and carried on.
There are 8 indicators to determine whether a business is being carried on. These are listed in paragraph 13 of TR 97/11. Although the ruling refers to primary production, these are equally relevant to non-primary production activities.
Example: not carrying on a business
Saania owns 16 rental properties, 14 of which are managed by real estate agents. Saania frequently attends personally to rental property matters, such as collecting rent and arranging for repairs to be done. She also undertakes regular analysis to measure the financial performance of her rental properties.
Saania is not carrying on a business of property investing because the activities are no more than letting properties.
End of exampleExample: carrying on a rental property business
Mr and Mrs Smith own several rental properties either as joint tenants or equal tenants in common. They own 8 houses and 3 apartment blocks. Each block comprises 6 residential units. So, they own a total of 26 rental properties.
The Smiths actively manage all of the properties. They devote a significant amount of time to these activities – an average of 25 hours per week each. They undertake all financial planning and decision-making in relation to the properties. They interview all prospective tenants and conduct all of the rent collections. They carry out regular property inspections and attend to all of the everyday maintenance and repairs themselves or organise for them to be done.
The Smiths are carrying on a rental property business. This is indicated by the following factors:
- the significant size and scale of the rental property activities
- the number of hours they spend on the activities
- their extensive personal involvement in the activities
- the business-like manner in which the activities are planned, organised and carried on.
For more information, see Property used in running a business.