Private ruling: Business v Hobby
Date of advice: 13 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you considered to be carrying on a business as an artist and art restorer? | A1: No.

Relevant facts and circumstances: You are a highly detailed artist and art restorer. You have a major in a relevant field and were a teacher. You first started art restoration three years ago when a neighbour asked you to restore a painting. From there, you self-learnt art restoration mainly from books and started advertising your services. You were a full time painter before art restoration. You do not have a business plan; you take on clients whenever possible. You are currently supported by your spouse who is working a full time job. Art restoration is your main focus but if you do not have any jobs, you will conduct painting activities. Your paintings are very time consuming, so you do not produce many in a year and the sales of paintings have decreased steadily over the years. You haven’t earned a taxable income for over a decade. You currently have two galleries that have some of your paintings on commission. The galleries haven’t sold any of your paintings for an extended period of time. You have little incentive to keep searching for art galleries. You told picture framers that you do art restoration services so they can refer people to you. Your previous colleagues also refer your services. You have a free listing in the Yellow Pages and do not pay for any other advertising. You also have a sign in front of your house to advertise your services. You work from home in your garage but often drive to collect and deliver the restoration work. You will be of pension age in a few years’ time. Art restoration is a slow process and not in high demand. You perform art restoration services for clients for sentimental reasons, not for profit. The price you charge on these services only cover the cost of materials and labour, but the labour time exceeds the price you charge. You would rather charge less and have a turn over, than charge a higher price and receive no work. On average, you receive about three requests for art restorations a month and devote around four hours a day but generally it varies depending on the job. You keep transaction records of each art restoration job. You provided your ABN to the art galleries but not to clients for art restoration services. You have a dedicated bank account for receiving revenue from your art restoration services as you do not want to give out your personal bank account to clients for confidentiality. You do not have a budget and will buy materials and equipment whenever required and you keep receipts of such expenses for your income tax returns. You are passionate and enjoy restoring art works and painting. You will restart a job if you are not satisfied with the result. You do not plan on ceasing these activities soon.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 995-1. Summary | You are not carrying on a business as you do not meet the indicators that you are carrying on a business. Your activities as an artist and art restorer are a recreational pursuit or a hobby. | Detailed reasoning | 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 Income Tax: am I carrying on a business of primary production? provides a guide to indicators that the courts have held to be relevant as to whether or not a person is carrying on a business. 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. | The above indicators are considered in combination and as a whole. Whether a business is being carried on depends on the general impression gained from looking at all of the indicators, and whether the indicators provide the activity with a 'commercial flavour'. | The pursuit of a hobby is not the carrying on of a business for taxation purposes. Money derived from the pursuit of a hobby is not regarded as income and is therefore not assessable. Expenses incurred in relation to a hobby are also not allowable deductions. | In your circumstances, your activity does not appear to have a significant commercial purpose. You do not have a business plan and take on clients whenever possible. Furthermore, you do not have an allocated budget and will buy equipment and materials whenever required. | You are not engaged in the activity with an intention to make a profit but primarily for your own enjoyment, highlighted further by the price you charge for your clients. You would rather charge less for jobs and receive a turnover of work than charging a higher price and have no work. Additionally, you currently have two galleries that have some of your paintings on commission but the galleries haven’t sold any paintings for an extended period of time. Subsequently, you have little incentive to keep searching for art galleries and primarily focus on art restoration and you haven’t earned a taxable income for a decade. | While you have maintained some records, overall, your activity does not appear to be organised or carried on in the same manner as a normal business activity. The small size and scale of the activity, and limited time invested further indicates that you are not carrying on a business. You only receive on average three jobs a month and devote approximately four hours a day but it generally varies on the job. This further indicates the regularity and repetition of the activity and although there still is a repetitive turnover and consistency, it is not at the level of a normal business activity. | Overall, in light on your circumstances, your activities as an artist and art restorer are a recreational pursuit or a hobby. Any amounts you received from this activity are not regarded as income and are therefore not assessable. Expenses incurred in relation to this activity are not considered allowable deductions.