Private ruling: Am I in business
Published: September 2014

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


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

Reasons for decision: Summary: Business is defined in section 995-1 of the Income Tax Assessment Act 1997 to be 'any profession, trade, employment, vocation or calling, but does not include 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 particular facts. Taxation Ruling TR 97/11 outlines some factors that indicate whether or not a business of primary production is being carried on. No individual factor is determinative, but should be weighed up in conjunction with the other factors. In the Commissioner's 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 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. TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case, and no one indicator will be decisive ( Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922). Applying the relevant indicators to your circumstances Although you spend time each week on various primary production activities, your activities do not have a significant commercial purpose. It is acknowledged that your losses may be reducing however you have not shown that your activities can be run as a profitable and commercial business. The size and scale of your activity is not large enough to be a commercially viable business. It is acknowledged that you have a background in primary production and carried out research, however the information provided and the future forecasts do not show that there is a reasonable expectation of a profit. After weighing up the relative business indicators and objective facts surrounding your case it is considered that you are not carrying on a business for taxation purposes. Therefore, any income you receive in relation to this activity will not be assessable as ordinary income under section 6-5 of the ITAA 1997 and no deductions can be claimed for the associated costs.

Relevant facts: The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | • the application for private ruling and | • additional information including a business plan. | You purchased a property which has a small carrying capacity. | You have been tidying up the property and doing repairs to the fences to ensure you keep your stock in and the neighbours livestock out. | You purchased some stock shortly after purchasing the property. You now have more stock. | You have researched various aspects of your business. | You spend several hours per week on your activities. | You intend to begin the sale of stock in the 2014-15 financial year. | Your business plan shows reduced losses over the first three years of operation. | You do much of the accounting work for your activities yourself, however an accountant completes your returns. | You do not advertise or market your product. | You have no electricity, telephone or grid power on the property. | You do not hand feed your stock. With the stock being small number in number you expect low costs for vet bills and freight and these expected expenses have been deducted from your expected sale price. | You use your own private vehicle and the tractor is not registered. | Your main cost is the purchase cost of the land repayments.