Private ruling: Am I in business
Published: May 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 of selling items online? Advice/Answers No.

Relevant facts and circumstances: You are in full-time employment in an occupation unrelated to selling items online. You have always had an interest in a particular item and for some time you have collected the items from a particular time period as a hobby. You have a certain number of the items in your collection. You purchase the items from online websites. When purchasing the items online, if you find an item you want within a lot for sale you must buy the entire lot even if you want just the one item. You sell the items you don't want on a particular website, with a minimum listed price of an amount that will cover the purchasing cost of the item and the fees you will incur from selling online. On average you do not make a profit on the sale of the items online and believe there is largely no prospect of making profit from your activity due to the high fees charged by the websites. On average you purchase as many items online as you sell. You have not created a registered online 'business', even though it would give you a discount on online fees and charges them impose. You repair some damage to the items to ensure they have a better chance of selling. You do not think your online selling activity is a business, as it is merely an avenue for you to sell the items you do not want. You do not keep detailed records of transactions, account books or profit and loss statements for your online selling activity. You do not have a business plan or a business name, nor do you employ staff, operate out of business premises or advertise your items for sale outside of the online sale sites. You believe your collection is a hobby and therefore selling unwanted items on online is an extension of that hobby. You never intended to carry on your activity as a business, and have since stopped selling your items online.

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

Reasons for decision: Detailed Reasoning - Ordinary income: Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts. | Detailed Reasoning - 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 provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The factors 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. 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. | Detailed Reasoning - Application to your circumstances: In your case you have had an interest in the items since childhood and consider your activity to be a hobby. You have never had the intention to carry on a business of selling your items online. You list your items at a price that will cover your costs associated with selling the items online and therefore there is little prospect of profit from the activity. The selling of the items online 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 detailed records of your transactions. Based on the information you have provided we do not consider that your online selling activity has the necessary characteristics of a business for taxation purposes. Therefore, any income you received in relation to this activity will not be assessable under section 6-5 of the ITAA 1997.