Private ruling: Am I in business
Date of advice: 20 April 2021
Published: June 2021
Ruling period: Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Are your carrying on a business for tax purposes in the 20xx-xx income year? | A1: No. | Q2: Is the $xxxx payment received included in your assessable income? | A2: No.


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

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 has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. The $xxxx payment you received is not considered to be in relation to personal services or income from property. Therefore, it is necessary to consider whether your activities are regarded as a business and whether the payment is assessable. Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include 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 outlines some factors that indicate whether or not a business of primary production is being carried on. These factors equally apply to other types of businesses. No individual factor is determinative, but should be weighed up in conjunction with the other 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. 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' ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case, and no one indicator will be decisive ( Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922). | Detailed Reasoning - Applying the relevant indicators to your circumstances: Your activities do not have a significant commercial purpose. Although you have spent considerable time and effort in your research work and writing activities, you have not made an overall profit. It is acknowledged that your activities were planned and organized, however, the size and scale of your activity is not large enough to be a commercially viable business. You have stopped keeping records of your expenses. The receipt of the $xxxx payment is more to cover the various costs of your writing activities. 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. Therefore, the $xxxx payment is not assessable income and does not need to be declared on your tax return.

Relevant facts: You write books. This is a slow, labour-intensive occupation that is intended to produce works of value. | Your work has a purpose of profit. | You work part time from your home office with research trips done as necessary. | The work is planned, organized and carried out in a business-like manner, similar to other writers. | Over the past xx years, you have written xx books. | You received grants to write you books. You receive royalties in relation to your books. | Entity A paid you a lump sum of $xxxx during the 20xx-xx income year on completion of your latest book. There are no further royalties to be paid on this book. There was no written or formal agreement in relation to your payment. | You visited relevant sites in various years at your own expense. | Your work does not generate a lot of income. Your work is a serious pursuit aimed at making income as well as producing quality books. | Over the years you have received grants from entity A that partly compensate you for the small financial returns on the books themselves. | The rewards are not always financial. You have received acknowledgements and comments in relation to your books and your latest book was submitted for an award. | Your latest book took over xx years to complete. | You spent about xx hours a week for xx weeks of the year for over xx years, that is, about xxxx hours on this book. | The payment of $xxxx is inadequate in terms of actual work done, however, you are in effect partly donating your time and skill to a good cause. | You initially refused to do the work because you knew it would entail a lot of work for little monetary reward. However, when they came back to you a couple of years later, you felt obliged to do the work. | You have incurred expenses in relation to your books. | Your xxxx tax return shows $xxxx in deferred business losses. | You did not include the $xxxx payment on your tax return. | In the last couple of years you ceased to record your expenses because of the seeming futility of doing so.