Common Rental Arrangements
When it comes to renting out property, there are several common arrangements you might consider:
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Renting Part of the Property: This involves leasing out a room or a portion of your home.
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Seasonal Rentals: You might choose to rent the property for only a part of the year.
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Domestic Arrangements: This includes receiving payment for board and lodging from family members.
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Renting to Family or Friends: You can rent your property to relatives or friends.
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Commercial Practices: Renting out your property in a manner consistent with normal commercial practices, also known as arms-length arrangements, is another option.
For more information, it’s important to understand the rental income you need to declare.
Rental Investors
Most property owners are considered investors rather than business operators, even if they own multiple investment properties. This classification is due to:
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Minimal Involvement: Activities such as interviewing potential tenants or inspecting properties are limited.
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Income Sources: Owners still primarily rely on income from other sources, like their jobs.
Carrying on a Business of Letting Rental Properties
Typically, income from letting properties isn't regarded as operating a business; it’s generally seen as an investment activity. However, certain factors may indicate that you are indeed running a business, such as:
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The large size and scale of your rental activities
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The significant number of hours you dedicate to these activities
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Extensive personal involvement
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A business-like approach to planning, organizing, and managing the activities
There are eight indicators used to determine if an activity constitutes a business, as outlined in paragraph 13 of TR 97/11. These indicators, although initially intended for primary production, are also relevant for non-primary production activities.
Example: Not Carrying on a Business
Consider Saania, who owns 16 rental properties, with 14 managed by real estate agents. She personally handles certain matters like rent collection and scheduling repairs and conducts regular financial performance analyses. Despite her involvement, Saania's activities are considered property letting rather than a business of property investing.
Example: Carrying on a Rental Property Business
Mr. and Mrs. Smith own several rental properties, including 8 houses and 3 apartment blocks, with a total of 26 rental units. They manage every aspect, dedicating around 25 hours per week each to their tasks. They handle all financial planning, tenant interviews, rent collections, inspections, and maintenance. This level of engagement, coupled with their organized and business-like approach, indicates they are indeed running a rental property business.
