Private ruling: Am I in business?
Date of advice: 7 September 2017
Published: January 2018
Ruling period: Year ended 30 June 2017. | Year ending 30 June 2018.
Date scheme commenced: DDMMYY

Ruling: Q1: Are you carrying on a business for tax purposes? | A1: No.

Relevant facts and circumstances: You operated a professional business as sole trader for a number of years with an ABN under a business name. Aside from professional business, you also did some other related support work. You began providing related support for Business A under the current owners. The previous owners were your relatives that you provided occasional support to before the current owners. You later moved overseas with your family on a Visa for reasons relating to your spouse’s work. Ahead of your move overseas, you ceased your professional business. You cancelled a professional membership you held, updated your website to say the business was not active, and announced its closure on social media. You did not cancel your ABN. You currently do work in the form of related support, for a friend of your relatives, and the current owners of Business A. You occasionally perform related support for your spouse’s parents’ new business. You also perform some related support work for friends and family when asked. On average, this may occur approximately twice a year. You do not have a business plan. You manage your finances and keep track of sales and expenses, however, you also keep spreadsheets to manage your family's household finances, and use a mobile app to manage all of your family spending. Your profit and loss statement relating to your professional business indicates a small net profit for the relevant period. Your profit and loss statement for your current activity indicates a small net profit for the relevant period. Your projected profit and loss statement for your current activity indicates that you expect a small net profit for the relevant year. Before completing your income tax return last year, you sought advice from your accountant who advised that your activity at the time was so small that your ABN may be cancelled. You do not have separate business bank account for your activity, however you use your personal bank account in Australia to receive payments from clients and then use the funds to pay hosting bills. You do not have a designated work space. You do not have any relevant formal qualification or training, but have developed your skills over time through experience. You are not a member of any relevant organisation and do not subscribe to any relevant publications. You do not hold any relevant licences. You spend a few hours per week on your activity, and enjoy performing the work you do. You are not employed, but spend the majority of your time taking care of your children and looking after your house. You are a foreign resident for tax purposes.

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

Reasons for decision: Summary: You are not carrying on a business as a XYZ. | Detailed Reasoning - Detailed reasoning: Section 995-1(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. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? provides the Commissioner’s view of the indicators that are taken into account when determining when a taxpayer is carrying on a business of primary production. These indicators are not confined to primary production activities but also are applied to all manner of business activities. The factors considered important 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. Application to your situation You generally perform your activity for family and friends, and enjoy the work that you do for them. You had previously operated a business which has since ceased and do not have significant commercial purpose, indicated by your activity’s actual and projected minimal profits. While some aspects of your activity occur on a regular basis, the overall scale is quite small as you spend a small amount of time per week performing tasks. Overall, in light of your circumstances, the Commissioner’s view is that your activity is a recreational pursuit or a hobby. Any earnings you receive from this activity are not regarded as income and are therefore not assessable, meaning you do not need to report these amounts in your assessable income on your income tax return. Expenses incurred in relation to this activity are not considered allowable deductions. You will still need to include your income from your professional business in your assessable income, prior to ceasing the business and moving overseas. | Detailed Reasoning - Future years: You should note that conducting an activity that has been described as a hobby is a 'status'. You can change from conducting an activity as a hobby to that of being in business and vice-versa over time as your level of activity changes. Therefore you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business. | Detailed Reasoning - ABN cancellation: As you are not currently carrying on a business you are not entitled to an ABN. Accordingly you will need to cancel your ABN. You can cancel your ABN by calling 13 92 26 between 8.00am and 6.00pm, Monday to Friday. You must be recorded by us as a person authorised to update details on behalf of the business. Alternatively you can complete and return the Application to cancel registration form (NAT 2955) which can be ordered from our website, www.ato.gov.au .