Private ruling: Am I in business
Published: September 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is income from selling products in two separate activities considered assessable income? | A1: No.

Relevant facts and circumstances: You are employed full time. You began selling products for company A in 20XX. For each order you make a profit of less than $50. You have a capital outlay of less than $50 per order, which includes the purchase of a number of brochures and demonstration products. You give some brochures to friends and family, and the remainder to people in your allocated area/street. The main reason for becoming a seller for the company was to receive seller's discount on the product. Further, you would generally spend all profit from the activity on the products each month. You work from home and spend approximately one hour every two days on the activity. You also recently became a consultant for company B. You hold parties at which you will sell the company's product. When you started the activity you had to sell a large number of the products to 'activate' your account. You held a number of parties during the start of the activity. During your first party you did not receive income from sales however you did received a 'starter pack'. During the next few parties you received gross total income of approximately $Y. On average you expect to host about one party per week, and have no intention of doing more. You work from home approximately one hour every two days, and also spend time hosting parties as a consultant. You do not pay for traditional 'advertising' for the activities, but use work of mouth through family and friends, and have created a Facebook page relating to the activity. You do not have a business plan or a registered business name for these activities. You do not rent an office space. You believe that the activities are a hobby. You have an ABN not related to the activities.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 6-5(1) | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Detailed Reasoning - Ordinary income: Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts. Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business. The income you receive from selling these products is not income from rendering personal services or income from property. Therefore, we only need to determine whether or not you are carrying on a business. | Detailed Reasoning - Carrying on a business: Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. The case of Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 stated that whether or not an activity amounts to carrying on business for taxation purposes is a question of fact. There is no exhaustive or determinative definition which can be applied to determine this matter. Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, however, provides that the test for determining whether or not a business is being carried on is both subjective, which considers the individuals purpose at the relevant time, and objective, which considers the nature and extent of the activities undertaken. Taxation Ruling TR 97/11 provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The factors are: · 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 regularity and repetition of the activity · whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business · whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit · the size, scale and permanency of the activity, and · whether the activity is better described as a hobby, a form of recreation or sporting activity. No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression gained. | Detailed Reasoning - Application to your circumstances: In your case you have an interest in the products that you sell, and your main motivation in undertaking the activity is for the discounts that you receive as a seller. The selling of the items has limited commercial character or purpose. You have no intention to engage in business, you do not have a business plan, nor do you operate out of a business premises. Based on the information you have provided we do not consider that the activities have the necessary characteristics of a business for taxation purposes. Your activities are considered a hobby. Therefore, any income you received in relation to the activities is not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition expenses that you incurred will not be deductible.