Private ruling: Am I in business
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you carrying on a business? | A1: No


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

Reasons for decision: Summary: 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. Section 8-1 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 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. In your case, although there has been trading activity in relation to selling the items over the years, it appears this activity has been influenced by your personal desire to assist your spouse in undertaking this activity in his retirement. Your intention in relation to this activity is not to make a profit. While the activity of making the items has some characteristic of a business such as keeping records and advertising you do not have a business plan for the future. The size and scale of the activity is very small and is expected to decline in future years. You have not invested any capital into the activity nor have you employed anybody. Your spouse spends a small number of hours a week on this activity when orders are placed. Your main source of income is from your regular occupation as you are only engaged in the activity for a few hours a year. It would be expected that a person engaged in the commercial activity would devote many hours to that activity in an effort to receiving regular income from their business activities. Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes and is considered a hobby. Therefore, any income you may receive in relation to this activity in the 2011-12 financial year and future financial years will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that may be incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997.

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: Your spouse commenced the activity in the 1990s. | Your role in the activity is to keep business records and order materials. | Your spouse's role is to produce the items for sale. | Your intention in relation to this activity is not to make a profit as the cost of materials to make the items is usually more than the price of selling the finished items. In addition, you believe the activity is only being undertaken because your spouse enjoys and loves making the items for friends and members of organisations in Australia. | The activity produces only a number of items a year. | Your spouse is retired and on a pension. | Due to your spouse's ill health over the last few years the activity has declined. | In the future the activity may produce only a few items a year. | The activity has an Australian Business Number. | You do not employ anybody. | You currently advertise that activity but expect to cancel this in future years. | You are intending not to keep business records in the future. | You are employed fulltime and only spend a few hours on the activity over the financial year. | Your spouse spends a small number of hours a week on this activity when required to produce the items for sale. | Your spouse has no other employment activity.