Private ruling: Carrying on a business
Published: September 2012
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1:  | A1: Yes.

Relevant facts and circumstances: The trustee entered into a contract to purchase a property with an approved development application (DA). An existing dwelling on the property has been demolished. The property will be held by you. The DA is to build units. You also intend to purchase more property for development in the future. The trustee has completed other projects as the trustee for other unit trusts. The directors of the trustee are also the directors of a construction company that will complete the construction on the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines a business as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee. The question of whether you are carrying on a business is a question of fact and degree. There are no rigid rules for determining whether the activity amounts to the carrying on of a business. The facts of each case must be examined. In Martin v FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551, Webb J said: The test is both subjective and objective; it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and, as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained. However, the courts have developed a series of indicators that can be applied to your circumstances to determine whether you are carrying on a business. Taxation Ruling TR 97/11 outlines the factors that need to be considered to determine if someone is carrying on a business. These are as follows: · whether the activity has a significant commercial purpose or character; · whether the taxpayer has more than just an intention to engage in business; · whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity; · whether there is repetition and regularity of the activity; · whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; · whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit; · the size, scale and permanency of the activity. In your circumstances; · the purchase of the property and the intended construction and sale of units to related and unrelated entities show that the activity has a significant commercial purpose or character; · you have purchased the property, demolished a dwelling, engaged a construction company to commence construction of units and have obtained signed contracts for the sale of those units. You therefore have more than just an intention to engage in business; · the sale of the units to related and unrelated entities at market value shows you have a purpose of profit as well as a prospect of profit from the activity; · repetition and regularity of the activity is evident in the previous activity of your trustee having managed the construction of several properties previously and your intention to engage in further property developments in the future; · the practice of holding development property in unit trusts is a widely accepted method within the property development industry; · you have planned, organised and carried out the purchase, demolition of an existing dwelling and then the construction of units in a businesslike manner such that it is directed at making a profit. · The large and general impression gained after examining the activity in the light of all of the business indicators is that your activity amounts to the carrying on of a business of property development. | Detailed Reasoning - Disclaimer: You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf. The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies. The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Carrying on a business: Question: Is the entity carrying on a business of property development? | Relevant facts and circumstances You are a unit trust with a corporate trustee.