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

Ruling: Q1: Are you carrying on a business of breeding and selling animals? | A1: No

Relevant facts and circumstances: You own a number of animals which you use in an activity. You do not get paid for this work, you do it to work your animals now that you do not have permanent access to a property and because you love working with your animals outdoors. Each year you like to breed one or two of your animals and sell to cover the cost of keeping the other animals. When you have animals surplus to your own requirements you sell them. You do not believe that you make a profit from breeding animals. You need a number of animals to carrying out your volunteer activities and after breeding the animals you may keep one or two animals to replace the retirement of some of your older animals. You have always had a passion for breeding all types of animals. You do not believe that you are carrying on a business. There is no business premise to operate out of, nor do you have a business plan. The size and scale of the activity is small and you do not expect it to increase in the future.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(1) | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: You are not carrying on a business of breeding and selling animals. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income according to ordinary concepts. This 'ordinary income' includes amongst other things, income from salary and wages and business operations. Section 8-1 of the ITAA 1997 allows you to claim a deduction for a loss or outgoing that is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business to gain or produce assessable income. These deductions are limited by the exclusion of losses or outgoings that are capital, private or domestic in nature. 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 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 particular facts. Taxation Ruling TR 97/11 incorporates the general factors. 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. 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. Applying the indicators to your circumstances In your case you keep and breed animals, as breeding animals has always been a passion of yours and you enjoy working with your animals outdoors. Your intention is to breed one or two animals per year with a view to sell them to cover costs associated with maintaining the animals used during your activity, not for profit-making purposes. Your activity has limited commercial character or purpose. There is no business premise to operate out of, nor do you have a business plan. The size and scale of the activity is small and you do not expect it to increase in the future. Any prospect of making a profit from your activity appears to be minimal as the expenses of caring, feeding and maintaining your animals exceeds the income from the sale of the animals. This lack of profit-making ability and commercial purpose in conducting your activities are significant features which detract from concluding that your activities constitute the carrying on of a business. Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. The activity could be better described as a hobby or past time which has arisen out of a keen interest in breeding and working with animals. Therefore any income you may receive in relation to this activity will not be assessable under subsection 6-5(1) of the ITAA 1997 as ordinary income. In addition, any expenses that may be incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997.