Private ruling: Am I in business?
Date of advice: 29 November 2017
Published: April 2018
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

Ruling: Q1: Were you carrying on a business during the income year? | A1: Yes.

Relevant facts and circumstances: You purchased a rural property (the Property). You reside at the Property. The next year you registered for an Australian Business Number (ABN). A couple of years later you registered for Goods and Services Tax (GST) and you registered a trading and business name. A couple of years after you registered for GST you commenced your horse spelling activities under a partnership arrangement at the Property you purchased. Horse spelling activities involves long and short term resting and monitoring of horses. The services you provide include: ● Transporting horses to and from the Property. ● Sourcing, transporting and providing fodder. ● Feeding the horses twice a day. ● Daily rugging and un-rugging of horses as required. ● Cleaning and daily filling and monitoring of water troughs. ● Worming and applying sprays to horses. ● Communicate the condition of the horse. ● Scheduling and arranging veterinary and farrier services. ● Preparing horses for veterinary and farrier appointments. ● Provide treatments and medications as required. ● Removal and disposal of deceased animals as required. ● Regular fertilisation and seeding of paddocks ● Watering of paddocks. ● Mowing of long grass in the paddocks. ● Carrying out regularly inspections for weeds. ● Spraying and/or immediately removal of toxic or problematic weeds. ● Mechanical paddock cleaning services to remove manure and debris. ● Daily property and fence inspections. You had a moderate initial outlay of capital for the purchase of the Property and have added to the capital by purchasing a quantity of machinery. You have modified the Property into many separately fenced paddocks The paddocks have been fenced using specialty wire to prevent injury to the horses. You are in the process upgrading the property to extend your overall long term capacity. You have endured constant interruptions to your horse spelling activities. You do not advertise your business through social media, the Yellow Pages or in newspapers and you rely on word of mouth from your clients. Your main clients consist of the racing industry, horse owners and breeders. You charge a commercial rate per day for the long and short term stays. You are currently operating at capacity. You have no formal contract with your clients. The horses are at the Property for between 6 -10 weeks or longer if they have injuries, and permanently if retired. The trainer/owner will determine the length of time the horses remain on the property on their arrival. You keep significant records of your activities including: ● Business records ● Client listings ● Description of each horse ● Additional supplies such as blankets, feed bins etc. You have provided a business plan. You spend a considerable amount of time on your activities, working seven days a week. You set up a separate business bank account and established a line of credit with the baking institution. You anticipate that the business will generate a profit in the next two years. You have no formal qualifications or licences in the relevant activity but have previous horse and cattle knowledge sufficient to enable you to plan suitable care and plan for the business and activities being undertaken. The trainers of individual horses also provide instructions on specific care required for each horse. You also use internet resources and scholarly articles, industry specific periodicals and books to improve your business knowledge.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6 - 5 | Income Tax Assessment Act 1997 Section 8 - 1 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: You are considered to have carried on a business in the income year. | Detailed Reasoning - Detailed reasoning: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer’s assessable income includes income according to ordinary concepts. Income according to ordinary concepts includes income derived from a business. Section 8-1 of the ITAA 1997 provides that a taxpayer may deduct an outgoing from their assessable income to the extent that the expense is necessarily incurred in producing that assessable income. Business is defined in section 995-1 of the ITAA 1997 as including any profession, trade, employment, vocation or calling but does not include occupation as an employee. If a taxpayer's activities do not amount to the carrying on of a business in one income year, that will not prevent them doing so in a later income year. Similarly, when the extent of an activity falls below what is required for that activity to be commercially viable, the activity may no longer constitute the carrying on of a business. Whether or not a person is carrying on a business is a question of fact, not a question of law. The determination of whether or not a business is being carried on is generally a process of weighing up all of the relevant indicators within the context of a given situation. No one indicator determines whether or not a business is being carried on. Taxation Ruling TR 97/11 ( Income Tax: am I carrying on a business of primary production?) provides a guide to the indicators that the courts have held to be relevant as to whether or not a person is carrying on a business. It should be noted that the principles in this ruling apply equally to all businesses. The indicators are: ● Whether the activity has a significant commercial purpose or character, ● Whether the taxpayer has more than 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 repetition and regularity of the activity, ● Whether the activity is of the same kind that is carried on in a similar manner to that of the ordinary trade in that line of business, ● Whether the activity is planned, organised and carried out in a business-like manner, ● The size, scale and permanency of the activity, ● Whether the activity is better described as a hobby, a form of recreation or a sporting activity. Application to your circumstances In your case, we have made the following observations: ● You had a moderate initial outlay of capital for the purchase of the Property and have added to the capital by purchasing a quantity of machinery. ● You charge a commercial rate per day for the long and short term stays. ● You have endured constant interruptions which have hindered the development of the activities. ● The Property has been modified into many separately fenced paddocks which have been fenced using specialty wire to prevent injury to the horses. ● You are in the process upgrading the property to extend your overall long term capacity. ● You provide your services on a regular and repetitive basis, some of these services need to be completed daily such as feeding the horses, rugging and un-rugging of horses, cleaning, filling and monitoring of water troughs. Others services need to be completed regularly but over a period time such as worming, providing a farrier and veterinary specialists. ● Other activities that need to be completed on a regular basis include fertilisation and seeding of paddocks, watering of paddocks in dry times via sprinkler pods, removal/spraying of weeds, mowing of long grassed areas around boundary lines and fence and pest maintenance. ● You have more than an intention to engage in business, you plan, organise and carry out your activity in a businesslike manner. You spend a significant amount of time tending to the horses, maintaining the Property and the underlying assets and researching industry specific business knowledge, working seven days a week. ● You keep significant business records which helps to: ● Identify the horses ● Provide individualised care/treatment/medication ● Track additional supplies such as blankets, bins etc. and to ● Invoice the correct client. ● You set up a separate bank account for this activity and have established a line of credit with the baking institution. ● You have a considerable amount of horse and cattle knowledge which enables you to plan suitable care for the horses in your possession and to plan for the business related activities being undertaken. ● Your activities would not be better described as a hobby, form of recreation or a sporting activity. Based on the information and documents supplied we consider that you were carrying on a horse spelling business during the income year. Accordingly any earnings you received from your trading activities are regarded as income and will be accounted for under section 6-5 of the ITAA 1997, while your expenses are deductable under section 8-1 of the ITAA 1997.