Private ruling: Deductibility of business expenses
Date of advice: 17 August 2017
Published: December 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Am I carrying on a business of marketing and tourism? | A1: No

Relevant facts and circumstances: In early 2017 you both established an ABN in your names. You intend producing a travel web site to promote rural and regional sites in Australia to domestic visitors and international tourists. The objective of the web site is to provide tourists with comprehensive information on services and facilities in towns and cities around Australia. The production of the web site will take several years to complete. You will be required to collect tourist data and good quality photographic material capturing tourist destinations for inclusion in the web site. You will travel to the destinations personally, and take your own photos to include on the web site. You are both retired. You have both travelled extensively around Australia in the past and have identified the need for a tourist website that features events, social activities, sites of interests, restaurants and tourist attractions particularly in rural and regional locations. You both intend to work full time gathering tourist data, recruiting staff/contractors to collect local information and photographs and producing the web site content. You have not produced a business plan or projected budget. You both have skills and a background in photography, marketing and sales. While travelling around Australia, you will select and train sales staff. You are currently negotiating with potential sales representatives to sell advertising to local businesses. You will be employing some staff through a commission arrangement You have estimated a likely gross income of around $100,000 in the next year, providing your proposed number of staff work for most of the year and sell a number of advertisements per week. You incurred expenses in setting up your current website. You both will be operating your marketing and tourism activities out of a caravan which you are towing. The caravan will serve as a small office space, containing a mobile, ipad and laptop and serve as a meeting place to interact with clients and possible contractors/or staff you may engage. You carry extensive camera equipment in the boot of your car. While away, your home containing your personal affects will not be rented out.

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

Reasons for decision: Summary: Your activity of creating a travel web site and selling advertising does not have a commercial character, and is not considered to be a business. | Detailed Reasoning - Whether your activity has a significant commercial purpose: Whether or not a business is being carried on is a question of fact, rather than a question of law. A determination of whether or not a business is being carried on is made by weighing up the relevant indicators to come to a conclusion based on the overall impression gained. The relevant factors in your case would be: ● whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators ● whether the taxpayer has more than just an intention to engage in ● whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity ● whether there is repetition and regularity of the activity ● whether the activity is planned, organised and carried on in a businesslike manner such hat it is directed at making a profit ● the size, scale and permanency of the activity ● whether the activity is better described as a hobby, a form of recreation or a sporting activity In your case, you are planning to create a travel web site, and intend to travel to potential tourist sites, take photos and review points of interest. You have created a web site, which shows that you have more than an intention to engage in your activity. At this time there is very little tourist information available on your web site, although you have commenced a blog. The web site has no links to other sites, and has no provision to book hotels or tourist venues, and has no items for sale. You have stated that you have a profit purpose and have estimated your gross income in the first year as around $100,000, however this is based on a sales structure that is not yet in place. At the moment this amount of gross profit seems an unlikely prospect. You have not advised that you have made any marketing sales to date which indicates that there is no repetition or regularity to your marketing activities. At this moment the activity does not appear to have commenced, so could not be said to be carried on in a business like way. As no sales have been made, it does not appear that at this time the activity is directed at making a profit. The size and scale of the activity appears modest in that there is only so many places you can visit personally, and it seems unlikely that you will be able to generate enough information for your site in this way to attract the amount of visitors to your site that you will need to generate advertising revenue. Overall, your activity lacks the commercial character that is required to be considered to be a business. You activities are more in keeping with a hobby. Any profits you make from the activity would not be assessable, and you do not need to include them in your tax return. Conversely, any expenses would be private in nature and not deductible.