Private ruling: Am I in business
Published: June 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you carrying on a business? | A1: No. | Q2: Are the items considered collectables? | A2: No. | Q3: Are the items considered personal use assets? | A3: Yes. | Q4: Are the items that were acquired for less than $10,000 disregarded for capital gains tax purposes? | A4: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Division 108 | Income Tax Assessment Act 1997 Subsection 118-10(3) | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Ordinary income Subsection 6-5(2) 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 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. 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 case of Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 stated 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 Income tax: am I carrying on a business of primary production? provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. While you are not involved in primary production, the factors remain relevant in your circumstances. The factors are: n whether the activity has a significant commercial purpose or character n whether the taxpayer has more than just an intention to engage in business n whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity n whether there is regularity and repetition of the activity n 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 n whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit n the size, scale and permanency of the activity, and n 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. Application to your circumstances In your case you have had an interest in the items since childhood. Although you have significant numbers of items and have made many sales, there is no indication that you have an intention to carry on a business or have a profit making purpose. You list your items at a price that will cover your costs associated with selling the item, and therefore there is little prospect of profit from the activity. The selling of your items has limited commercial character or purpose. You do not have a business plan, nor do you operate out of a business premises. You do not keep adequate records of your transactions. Based on the information you have provided we do not consider that your activities have the necessary characteristics of a business for taxation purposes. Your activities are regarded as a hobby. Therefore, any income you receive in relation to this activity will not be assessable as ordinary income under section 6-5 of the ITAA 1997. Furthermore, as you are not considered to be carrying on a business, your items are not regarded as being trading stock. Capital gains tax (CGT) Under section 6-10 of the ITAA 1997, assessable income also includes statutory income, such as capital gains. CGT Asset A CGT asset is defined in section 108-5 of the ITAA 1997 and includes any kind of property or a legal or equitable right that is not property. CGT assets fall into one of three categories: • collectables • personal use assets, or • other assets. All assets are subject to the CGT rules unless they are specifically excluded. Capital assets acquired before 20 September 1985 are disregarded for CGT purposes. Collectables A collectable is defined in subsection 108-10(2) of the ITAA 1997 and is (a) artwork, jewellery, an antique, or a coin or medallion; or (b) a rare folio, manuscript or book; or (c) a postage stamp or first day cover; that is used or kept mainly for your personal use or enjoyment. Your collection is not regarded as a collectable for CGT purposes. Personal use asset Paragraph 108-20(2)(a) of the ITAA 1997 states that a personal use asset is a CGT asset (except a collectable) that is used or kept mainly for your (or your associate's) personal use or enjoyment. In your case, your items are regarded as personal use assets for CGT purposes. Under subsection 118-10(3) of the ITAA 1997 a capital gain from a personal use asset is disregarded if the first element of the asset's cost base is $10,000 or less. The first element of an asset's cost base is the money you paid or are required to pay in respect of acquiring it and the market value of any other property you gave or are required to give in respect of acquiring it. A capital loss from a personal use asset is disregarded as stated in subsection 108-20(1) of the ITAA 1997. Therefore where the cost of your items is greater than $10,000 and you make a capital gain on the sale of such items, the relevant capital gain forms part of your assessable income.

Relevant facts: The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. | The relevant documents are: | n the application for private ruling, | n additional information including spreadsheets of your sales. | You have collected specified items since you were a teenager. Several years ago your interest in these items was reignited after you saw a collection. | You collect, buy and sell these items. | Your collection is extensive. | You started sourcing items that were available. | In buying old collections, there would be numerous items that you either did not collect or already had. People rarely allow you to buy just the items you want from a collection, they want the lot gone, all at once. That leaves you to pack and transport them, as well as find an outlet for the ones you do not want. | When buying items, you keep the best of them and sell others to cover the cost of the ones you keep. | You continue to try to sell the excess items to fund further purchases and take trips to meet other collectors. The items are generally not sold as a set. | Some items are either given away or thrown away. You sell some items for well under value. | You have costs in moving the items, postage, packaging, equipment and the addition of a purpose built display room in your home. | Some weeks you spend up to 1½ hours with the items. Other weeks you don't spend any time. | You put some items on E-bay approximately once a month, but rarely continuous months. You have not put any items on E-bay for several months. | You do not advertise the items for sale, apart from some E-bay sales. | You were previously advised by the Tax Office that your activities were not a business for taxation purposes. You therefore do not keep business records. However your activities have increased over the years. | Whilst you are happy to show your collection to people, you do not open it to the public, nor do you charge anything for showing it. | You do not have a business card. Your items are not insured. | You do not use the money from the sale of the items to live on.