Private ruling: Income - assessable
Date of advice: 26 August 2016
Published: October 2016
Ruling period: 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is your bookkeeping activities considered to be a hobby? | A1: No. | Q2: Is the payment received for your bookkeeping activities from your spouse and other family members private in nature and therefore not assessable? | A2: Yes.

Relevant facts and circumstances: You work full time as a specialist medical professional. You have an ABN in relation to your medical practise. You have an interest in computers and programming. You complete basic bookkeeping for your family members, primarily your spouse. You charge an hourly rate for completing their bookkeeping and average about four hours per week. You use your personal computer to perform the bookkeeping.

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

Reasons for decision: Summary: Question One Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during an income year. A hobby is a spare-time activity or pastime pursued for pleasure or recreation. Unlike a hobby, other income earning activities are run with the intention of making a profit and they will have basic reporting requirements, such as declaring income and claiming expenses. In your case, you are charging an hourly rate that would be consistent with that of the commercial rate for a professional bookkeeper; therefore your activities would be considered a commercial arrangement and not a hobby. Question Two The courts have addressed issues where a person pays their spouse for services. In Case M55 80 ATC 366; (1980) 24 CTBR (NS) Case 30 , an employee pathologist was denied a deduction for wages paid to his wife to take messages for him when he was on call. The Board considered that the expenditure was not incurred in gaining or producing the assessable income and was of a private or domestic nature. Dr Beck stated at ATC page 368, CTBR (NS) page 242 that: If an employee pays another party to render some of the services for which the employee is paid, this expenditure is not a cost of deriving the income. It can be regarded as a cost of lightening the work load, of gaining time off, of filling a gap in the employees competence, or, perhaps of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded ...[from being deductible] In Case S84 85 ATC 618, the taxpayer was a relieving magistrate. He paid his wife to undertake secretarial duties, principally answering the phone, whilst he was travelling as a relieving magistrate between different venues. It was agreed that his wife performed the duties however the claim was disallowed on the grounds that it was essentially expenditure of a private or domestic nature unrelated to the derivation of the taxpayer's income. Although the above cases relate to employees and to deductions, the principles are relevant in your circumstances. As the finding above is that the payments made were not deductible expenses as they were private in nature, it follows that the payments would not be assessable income in the hands of the recipient for the same reasons. In your case, you are completing bookkeeping activities for your spouse and other family members and charge an hourly rate. You do not have bookkeeping qualifications however you enjoy working with computers. As in Case M55 , the payments you receive are not made in deriving your spouse's assessable income as the need for assistance arises from your personal situation. Therefore the amounts you receive are not assessable under section 6-5 of the ITAA 1997. The arrangement and associated expenses are private in nature.