Private ruling: Am I in business?
Date of advice: 4 July 2018
Published: September 2018
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you carrying on a business of animal breeding, training and racing? | A1: No

Relevant facts and circumstances: You have been breeding, training and racing animals for a considerable time. You do this as a hobby and for your own personal pleasure, enjoyment and love of the sport. You have been fortunate in that you have, in the past, generated a reasonable income from this pursuit, though this is very much a sport of chance, with no surety of income from any race or any animal. You own approximately X animals at the moment: You attend local races mainly, at times travelling further, though you never stay away overnight as you have animals at home that need to be fed and cared for. You attend races a few days per week, though you don’t race any of your animal’s more than once per week. You do not breed the animals for the purpose of sale, you breed them to raise the next generation of potential winning racers and for the love of the sport. You keep all the animals until you can determine their racing ability, which can take up to two years of training and race trials.. One of the partner’s in the business has a public trainer’s licence and does occasionally train animals owned by others, but does not receive regular payments for this. You keep records for all winnings and expenses for the animals. In the 20XX-XX financial year you received a moderate amount in race winnings, with an overall deficit in that financial year. In the following financial year you received a larger amount in race winnings, with an overall surplus in that financial year. During the financial year where you received a larger amount of race winnings, you did not increase the number of races entered for any of your animals, and the reason for the increase in the race winnings was largely due to chance, and the following factors: ● Your animal’s selection and victories in more of the city races, which attract higher prize money compared to country races. ● Your animal’s selection and victories in city feature races, which also attract higher prize money. ● More favourable starting positions in the races, which you have no influence over. The city feature races generally attract higher prize money than the standard races. You do not intend on increasing the number of races and meetings your animals will enter in future years. You do not have a business plan or structure. You do not pursue this as a profit making venture and have no intent that any income from the racing will become a substantial part of your livelihood. You own and manage another business as your main source of income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines business as including any profession, trade, employment, vocation or calling, but not occupation as an employee. The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts provided. Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes. In the Commissioners view, the factors that are considered important in determining the question of business activity 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 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 out 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 a 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. | Detailed Reasoning - Application to your circumstances: After consideration of the above indicators, it follows that you are not carrying on a business of animal racing for tax purposes. You breed, train and race animals as part of a vigorously pursued hobby and for the love of the sport, rather than it being carried out in a businesslike manner such that it could be described as making a profit. Although there is a regularity and repetition to your activities, you do not carry on your activity in a business-like manner as it is not your intention that animal racing be part of your livelihood and this is very much a sport of chance, with no surety of income from any race or any animal. You have been involved in animal racing for many years. You breed and train the animals for your own enjoyment. You do not sell or train the animals for others for profit. Although you keep records of your income and expenses, this is viewed as a means of keeping track of your hobby. You do not have a formal business plan or structure. You race primarily at the local race tracks with only occasional visits to tracks elsewhere and do not stay away overnight. Whilst your race winnings increased significantly for the period 1 July 20XX to 30 June 20XX, this was not due to an increase in the number of races entered for any of your animals, but rather factors of chance such as more favourable starting positions, and your animal’s selection and victories in the more lucrative city meetings and feature races. You also do not intend on increasing the number of races and meetings your animals will enter in future years. Your primary source of income is from other business. As you are not carrying on a business of animal racing for tax purposes, the income from your animal breeding, training and racing activities is not regarded as assessable income and the associated expenses cannot be claimed as deductions.