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Chapter 6
Rental Income, :warning: Exam Focus
Business Source for…
Chapter 6
Rental Income
Rental Income
S4(a) Business Income
- if maintenance and support services are actively and comprehensively provided
- include the maintenance of real property & exterior part of real property
- the service can provided by himself or hire another person
:red_flag: Related Party
- premises rented to related party and the maintenance and service is comprehensively = :check: s4(a)
- related party =
a. company = >20% x ord / pref sh of the other
b. company + individual = one party able to influence the other
- if rental charged NOT at the arm length price, DG will adjust
S4(d) Investment Income
- if maintenance and support services are NOT actively and comprehensively provided
- maintenance and support service are passively derived from ownership
Special Cases for IBA
:check: IBA claim against the rental income received
:red_flag: Owner
- owner own the factory &let out the factory
- the factory is used for warehousing / manufacturing business
- :check: IBA by the owner of the factory
:red_flag: Tenant
- has relevant interest then :check: IBA
- :check:IBA if have renovation cost
- if incurred expenditure :check:IBA
:red_cross: IBA Claim against the rental income
- rent entire IB is NOT for factory / warehousing business
- Tax treatment: :check: IBA against the business income of the IB
:red_flag: Partially rent out
- rent space<=10% of total floor area = whole building qualified for IBA :check:
- rent space>10% of total floor area = allowed for par of the building which not used for purpose of he tenant against business income
-
Expenses for rental
:red_flag: Initial expenses
- :red_cross: deductible (not incurred in production of income)
:red_flag: Exp incurred during temporary cessation
- period the real property id not rent out after it has been let out = :check:deductible
- repair or renovation absence of tenant for a period of 2 years = :check:dedcutible
- beyond the control if who let out :check: deductible
- real property maintained in good condition & readly to let out = :check:deductible
:red_flag: property has not commenced yet = :red_cross: deductible:red_flag: direct expenseswholly & exclusively in th eproduction of rental income= :check: deductible
-
Capital Allowance (CA)
S4(a) Business Income
- :check: CA claimed
- letting temporarily ceased
:red_flag: rental from S4(a) to S4(d)
- assessed under s4(d)
- :red_cross: CA claimed (not purpose of business)
:red_flag: rental from S4(d) to S4(a)
- assessed under s4(a)
- :check: CA
S4(d) Investment Income
- :red_cross: CA claimed
- :check: deduction claimed on replacing furnishing
- Initial cost = :red_cross:deductible
:warning: Exam Focus
- Business Source for rental could be:
a. incidental to current business /
b. a new business sources
- Renting out part of the building – Treated as same source as existing business. So only one source exists. Rental income is incidental to business income.
- Renting out a separate property / ies – If maintenance and support services are provided actively and comprehensively, then we have two separate sources:
a. business 1 - trading
b. business 2 - rental income
:warning: Exam Scenario
- When get the question need to split it whether is business income or investment income.
:warning:Past Year
- a) The highway operator received rental income from those west area. So that is incidental because highway must provide west area. (no need to open second business)
Question:
- A rent out its factory to B. B uses the factory for manufacturing its products. Can A claim IBA?
- Yes, A has incurred Qualify Building Expenditure (QBE), and the factory is used by B. B cannot claimed the industrial building allowances because B has not incurred any expenditure. But B has renovated the factory, then the renovation cost can claim IBS for B, because B incurred the expenditure.