Instant Asset Write Off and 'Carrying on the business of letting properties'

If people are considered to be 'in the business of letting rental properties' as far as the ATO is concerned, do other business rules apply, such as the instant asset write off for business assets?

Or would they fall into the category of "assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease"

Or are real estate investors excluded, even if the ATO considers them to be carrying on a business.

 

What do you think might be a business asset? If you have a corporate trustee for a trust then the trustee might be eligible for the instant asset write off of it's business assets (eg a laptop, mobile phone) but it wouldn't be able to write off assets that are part of a rental property

PS not an accountant - this is just my understanding of what I think you are asking?

 

If the entity is carrying on a business for the instant asset write-off for depreciating assets only really works if the property is used for short-term hires (less than 6months). You get there via s328-175(6) ITAA97 - cannot apply the SBE measures to assets hired under ‘depreciating asset leases’ - however assets leased under ‘short term hire’ arrangements are excluded from definition of ‘depreciating asset leases’. What constitutes a business is discussed in TR 2019/1.

It's an interesting one and could potentially apply to rental property assets. But i wouldn't be doing it without a Private Binding Ruling. Would certainly need more than one or two properties to be considered to be a business.

If it was run through a company it becomes a very interesting issue indeed.

 

I would have two thoughts as to the ATO approach on such a ruling request
1. They would likely not reply meaning the request was refused and no ruling will be issued within the require 28 days. The Commissioner does this with contentious issues to avoid a monster; or
2. The Commissioner would adopt a very strict view that passive income is being produced and the use of a platform does not in itself constitute a business activity. It may be conduit eg just as using an agent doesnt make it a business either. And the hire activity is not in respect of each transaction but that of a expected stream of them arising through the platform. Or several (many) sources of short term letting which is the taxpayers business rather than attempting to classifty one this way and with neg gearing. The concept isnt consistent with the Commissioners views on a property rental business.

And one deteriment to a rental property business may be that the legal ownership is not a determinant of how income is shared by owners.

 

I couldn't find when checking the ATO website
Hows a business office space treated (I mean commercial office space or a commercial residential apartment used for business purposes). Can this asset reduce the taxable income - say I have $500k at the end of next year? Is it an opex thing?
I understand the current setup but I don't understand how the property is treated?
https://www.ato.gov.au/Business/Dep...n-for-small-business/Instant-asset-write-off/
Recent changes
For assets first used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020, the instant asset write-off:

• threshold amount for each asset is $150,000 (up from $30,000)

 

Maybe clarify your situation a bit more @JoeK but this would likely be a commercial lease rather than an asset for IAWO purposes. (Assuming you or the business is the tenant).

 

Sorry, you are right I wasn't clear enough.
We've made say $500k profit. I don't have an office space, yet. We conduct business from our house.
We'd like to buy an commercial or residential property as an office space, say $300k-$400k. Even if it is a residential type of property (apartment), we would still use it as an office space, rather than buying a typical commercial space.
So would this be an investment, capex, etc and therefore reduce the taxable income for the calendar year?

Can you please clarify or share some links.

Thanks in advance

 

Rental income is a passive return from the act of investment. It is not a business in most instances. A property may be connected with a business but remains passive income.

A taxpayer (or taxpayers) who conduct a property busienss which produces significant income based on a large number of properties that is their predominant income and also operate the enter[prise in a business like manner could operate a property busienss. I would only accept this with a binding priate ruling. Intrinsic ATO material suggests examples with 30+ properties. The net income should also be positive and be the taxpayer/s sole or quite predominant income. The effect of a property business also then can lead to loss of the % ownership choices despite what title says and all income may be joint for the parties (ie spouses)

A trading business should NOT normally own property as this exposes it as a loss to creditors. The major risks will outweigh the benefit of a short term bring forward of Div 40 deductions.

Deductions for residential premises solely used a business can be a risk. You must prove that or fringe benefits and denied deductions could apply. There are many issues to address and personal tax advice would be wise. eg If the busienss was a trading company and it is not party to a lease then no rent is deductible. FBT applies. GST issues also can impact this.

 

If you're asking whether your business can get an outright deduction for buying a $300k property, the answer is no. The instant asset write off is not available to capital works deduction assets (Buildings, extensions, improvements etc)