Private ruling: Am I in Business
Published: June 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the entity carrying on a business? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(1). | Income Tax Assessment Act 1997 section 8-1. | Income Tax Assessment Act 1997 section 995-1.

Reasons for decision: Detailed Reasoning - Carrying on a business: Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income according to ordinary concepts. This 'ordinary income' includes amongst other things, income from salary and wages and business operations. Subsections 8-1(1) and (2) of the ITAA 1997 allows you to claim a deduction for a loss or outgoing that is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business to gain or produce assessable income. These deductions are limited by the exclusion of losses or outgoings that are capital, private or domestic in nature. Taxation Ruling TR 97/11 provides the types of criteria established by the courts that would need to be satisfied in order to be considered to be carrying on a business. It should be noted that TR 97/11 specifically deals with the carrying on of a business of primary production, but the criteria established can be applied to most activities. The list of criteria includes, but is not limited to: · whether the activity has a significant commercial purpose or character · whether there is more than just an intention to carry on a business · whether there is the purpose and prospect of making a profit · whether there is repetition or regularity involved · whether the activity has the same characteristics as other businesses in the · same field · whether the activity is carried on in a business-like manner; and · the size and scale of the activity No one indicator is decisive. They should be considered in combination and as a whole. Generally, whether a business is carried on depends on the large or general impression given. | Detailed Reasoning - Applying the indicators to your circumstances: In your case, the entity has operated for a number of years and has been profitable during this time. The entity has invested a significant amount of capital into the activity by purchasing plant and equipment. The entity operated out of business premises in the financial year. While the entity's business operation may have slowed and its business income had decreased, from the information provided the entity's business still has significant commercial purpose. This is supported by the fact that entity's intention was to operate with a view to making a profit, the management of the entity had actively sought to keep operating although in a limited capacity by continuing to undertake trading activities, carrying out maintenance, business and administrative duties, advertising it's services and liaising with prospective clients. One employee was engaged with the entity on a full-time basis until the slow down in business operation where their hours of work were reduced. Another employee also worked a smaller number of hours a week for the entity during the financial year. While the business activity of the entity has slowed, the nature of entity activity is similar to other service providers that suffered from economic slow downs, that is, they operate in a reduced capacity for commercial purposes or a profit. After weighing up the relative business indicators and objective facts in regards to the entity activities, it is considered that the entity was carrying on a business activity during the financial year.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: The arrangement that is the subject of the private 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: | · private ruling application | · a Profit and Loss Statement | The entity has been operating for a number of years. | The entity operates out of business premises. | The entity has recorded a profit for every financial year since operation began. | The entity's earned business income during the financial year. | The entity holds assets of a significant value. | Due to economic slow down and business competition the entity's business activity had been reduced in the latter part of the financial year. | The entity had to terminate the services of a number staff. | One member of the management had to engage in other employment and as a result this staff member's work hours were reduced with the entity. | In the later part of the financial year the business operated at a reduced capacity. | During this time the entity's intention was to keep trading by undertaking the following activities: | · maintaining plant and equipment | · undertaking service work | · liaising with customers and suppliers to seek work. | The employee for the entity had undertaken the following activities at the business premises: | · installing and connecting equipment | · regular site maintenance | · administration work such as income reconciliation, BAS, follow up telephone calls to clients | The management for the entity were actively engaged in seeking work by: | · holding meetings with clients | · making calls to existing clients | The entity advertised it's services during the financial year. | The entity's intention is to recommence full-time operation once work picks up. | The entity does not intend to cease business operation in the foreseeable future.