Private ruling: Am I in business
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 01 July 2011

Ruling: Q1: Do your activities satisfy the requirements of carrying on a business? | A1: No.

Relevant facts and circumstances: You have an interest in a particular field which you pursue in your spare time. You started your activities in this field a number of years ago. You are the only person involved in your activities. You have not undertaken any detailed market research. You have yet to earn any income and do not have a projected timeline of when you will be in a position to earn any income or make a profit. From time to time grants become available in this field; however these are only available to businesses. You decided to get an ABN as a sole trader as this attracts no fees. You registered for an ABN online and when it came to the check box 'is this a hobby' you checked 'yes'; however it wouldn't accept it so you went back and checked 'no' and received your ABN. You are employed in an unrelated field.

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 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts. Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes. In the Commissioner's view, the factors that are considered important in determining the question of business activity 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. TR 97/11 states that the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' from looking at all of the indicators, and whether these factors provide the operations with a 'commercial flavour'. However, the weighting to be given to each indicator may vary from case to case. In your case, you have been undertaking activities in your field of interest for a number of years. However at this point in time you have not done any detailed market research and do not have a projected timeline of when you will be in a position to earn any income or make a profit. Based on the information that you have provided, we do not consider that your activities have the necessary characteristics of a business for taxation purposes. It appears that these activities are better described as a hobby. Therefore, as you are not considered to be carrying on a business, you are not entitled to claim a deduction for any expenses that you have incurred with regards to this activity.

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.