Private ruling: Am I in business?
Published: July 2011
Ruling period: Year ended 30 June 2011 Year ended 30 June 2012 Year ended 30 June 2013
Date scheme commenced: 1 July 2010

Ruling: Q1: Do your activities amount to the carrying on of a business for tax purposes? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Your approach to your activity cannot be regarded as businesslike, you have not demonstrated a potential for profit and the small scale of your activity does not give the impression of a significant commercial purpose. Based on the information provided in your private ruling application, the Commissioner considers you are not carrying on a business and your combined activities would be considered a hobby. Therefore, any income you may earn will not be assessable and any expenses you may incur will not be deductible. | Detailed Reasoning - Detailed reasoning: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that your assessable income includes income according to ordinary concepts. This is called ordinary income. The income that you derive from a business is considered to be ordinary income. Section 8-1 of the ITAA 1997 allows deductions for expenses incurred in earning your assessable income or necessarily incurred in carrying on a business. The question of whether you are carrying on a business is a question of fact and degree. There are no hard and fast rules for determining whether your activities amount to the carrying on of a business. The facts of each case must be examined. In Martin v. Federal Commissioner of Taxation (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. The courts have developed a series of indicators that you can apply to your circumstances to determine whether you are carrying on a business. Taxation Ruling TR 97/11 'Income tax: Am I carrying on a business of primary production?' summarises these indicators. The relevant indicators of whether you are carrying on a business 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. | Detailed Reasoning - Significant commercial purpose: The activities you describe are very small in scale and would not be commensurate with commercial production. You state that you keep some of the stock for non-business reasons. You have no plans to build other livestock numbers up and limited land to do so. You do not carry out the activity for a commercial purpose, instead stating that 'this is a lifestyle choice'. | Detailed Reasoning - More than intention to engage in business: You have not developed a business plan as your objective is not to produce a tax profit from commercial amounts of livestock. The facts provided do not support an intention to engage in business and no commitment to purchase sufficient levels of stock has been made to date. | Detailed Reasoning - Purpose and prospect of profit: You have not provided any projected figures indicating that a profit can be made. You state that there is no chance of profit in the short term and that it is unlikely that your activity will be commercially viable. | Detailed Reasoning - Regularity and repetition of the activity: It is acknowledged that the mixed activities and the small scale of each activity will contribute to multiple tasks requiring regularity and repetition. | Detailed Reasoning - 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.: Your activities are conducted on a very small scale, compared to others in those lines of business. | Detailed Reasoning - Planned, organised and carried on in a businesslike manner: You have not developed a business plan and you do not carry on the activity in a businesslike manner. You are using the property on which you reside for the activity and you refer to its limited size for running livestock. As previously mentioned, you state that conducting these activities from your home is a 'lifestyle choice'. | Detailed Reasoning - The size, scale and permanency of the activity: The scale of the activity is very small, starting off with a small numbers of mixed livestock. You have plans to build some stock numbers up to numbers still considered a very small number when compared to commercial businesses. This is not indicative of a scale sufficient for an activity to be considered a business. | Detailed Reasoning - Whether the activity is better described as a hobby: You do not intend to conduct the activity as a business. You state that you are 'reasonably certain' that you are engaged in a hobby. | Detailed Reasoning - Conclusion: We consider that your activities, conducted on the scale and in the manner described, will not be carrying on a business during the 2010-11, 2011-12 and 2012-13 financial years.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You own a property of approximately 40 acres which is your place of residence. | You run small numbers of mixed livestock and you plan to expand some of the stock. | You state that your purpose for keeping most of the livestock is for reasons other than business purposes. | You have no business plan, no budgets, no profit and loss statements. | To date you have not kept records or books of account for your activities. | You expect that within three years you will have sufficient breeding stock to enable you to sell excess production 'so that the livestock will at least pay their direct costs'. | You do not carry out the activity for commercial reasons. You state that it is a 'lifestyle choice, and unlikely to be commercially viable'. | You state your property size limits the size of your enterprise and any profit would be difficult to sustain. | You expect to produce a range of livestock for sale on an ongoing basis.