Private ruling: Am I in business - Farmstays
Date of advice: 7 April 2016
Published: May 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 January 2014

Ruling: Q1: Are your farmstay activities carrying on a business? | A1: No

Relevant facts and circumstances: The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • the application for private ruling and • additional information received. You receive income for providing board and lodging to foreign students and family groups. You provide accommodation, meals, transportation and entertainment. You incur associated costs which include; motor vehicle expenses, entrance fees to tourist attractions, food and preparation costs (3 meals per day + snacks), garden and pool maintenance, guest presents, electricity, excess water, linen, cleaning costs, medical supplies, internet access, furniture, printing and stationary costs. There may be negligible income after expenses are deducted. You use your residence which is owned by your spouse. You have included your income and expenses in your 20XX income tax return based on informal advice provided.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5

Reasons for decision: Summary: Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident includes ordinary income derived directly, or indirectly, from all sources during the income year. Ordinary income includes income from carrying on a business. Therefore it is necessary to consider whether your activities are regarded as a business and whether the income is assessable. | Detailed Reasoning - Carrying on a business: Whether or not a person is carrying on a business is a question of fact, not a question of law. The determination of whether or not a business is being carried on is generally a process of weighing up all of the relevant indicators within the context of a given situation. No one indicator determines whether or not a business is being carried on. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) lists the following indicators as relevant in determining if a business is being carried on: • whether the activity has a significant commercial purpose or character, • whether the taxpayer has more than an intention to engage in business, and • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity. TR 97/11 states 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' Further guidance is also provided in Income Tax Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases. This ruling provides guidelines about rental properties and discusses when rental income is regarded as assessable income. Importantly, where you rent out your property or part of your property, the rental income is normally regarded as ordinary income and therefore part of your assessable income. Particularly paragraph 17 of IT 2167, outlines that where there is a non-commercial arrangement and where a payment is received for board or lodging, then the income is considered to be a domestic arrangement not giving rise to assessable income. It follows that the question of income tax deductions for losses and outgoings does not arise. When using your home for farmstay guests, the essential question is whether the arrangements are consistent with normal commercial practices. If an amount received from a farmstay guest is not a commercial arrangement, then the payments are not regarded as assessable income. Applying the relevant indicators to your circumstances In your case, you have farmstay guests staying with you. You receive an amount to help cover their accommodation, meals and other expenses. This is a contribution to the cost of accommodating the guests in your home. It is acknowledged that you have records of your income and expenses however your activities are not considered to be carried on in a business like manner. The size and scale of your activity is not large enough to be a commercially viable business. The prospect of profit from your activity is also low. The overall impression gained is that your farmstay activities do not have a significant commercial purpose. After weighing up the relative business indicators and objective facts surrounding your case it is considered that you are not carrying on a business for taxation purposes. The income received from your farmstay guests is not regarded as assessable income. It follows, that no deduction is allowed for the associated expenses.