Private ruling: Am I in business
Published: September 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you carrying on a business? | A1: No

Relevant facts and circumstances: You have been carrying on activities relating to X. You have an ABN and have previously returned the income from these activities as business income. However, due to your age, you have reduced the activities. You anticipate that the time spent on these activities will continue to reduce. You have never advertised to get customers. Your customers have been obtained through word of mouth and customer's approaching you after seeing your work.

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

Reasons for decision: Summary: Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. In Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 it was determined 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 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 business-like 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 carried on services. You have an ABN and have historically returned your income from these activities as business income. However, over the past years, the amount of time you dedicate to these activities has reduced. Although past earnings from your activities have proved that there is a real prospect of profit from the activities, we consider that the regularity and scale of the activities has been reduced significantly over the past few years and will continue to be reduced. Accordingly, we consider that you are no longer carrying on a business and that the activities can be better described as a hobby. Therefore, any income you receive in relation to this activity from the 2012-13 financial year will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you have incurred in relation to this activity will not be deductible.