Private ruling: Hobby or business - providing an online server.
Date of advice: 29 July 2019
Published: September 2019
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you carrying on a business of providing an online game server? | A1: No Whether a 'business' is being carried on depends on the large or general impression gained. No one indicator is decisive. The indicators must be considered in combination and as a whole (Taxation Ruling TR 97/11). When the server commenced it was your intention to use this for enjoyment purposes only. There is no regularity to the time you spend on the server. There is no reliance on the donations you receive and if they were to stop, you would continue to pay for the server out of your own personal income. The donations you do receive are to cover costs for up-grades. You have applied a monthly limit on what can be donated as your intention is not to make a profit. The server is not advertised and can be found on a list with thousands of other servers. Therefore, we consider the actives are not undertaken in a business-like manner for tax purposes. Any income you received in relation to this activity for the relevant year will not be assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as ordinary income. In addition, any expenses that you incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997. Further issues to consider Although you may describe your activity as a hobby, 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 you level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business. You can request a further private binding ruling after the subsequent financial year if you are still unsure about the issue.

Relevant facts and circumstances: You currently work full time as a professional. This entails shift work on a rotating shift and in your spare time you play online games for enjoyment. There was a popular game you enjoyed playing and there was no servers hosted here in Australia. The overseas servers provided poor connection for Australian players which affected the ability and quality to play the game. A gamer released a modification for the game; this allows people to host their own local servers on a modification of the game, with other gamers who already play the game. In 20XX, you decided to create an Australian server of the game that would be fun, locally hosted, to play the game and try and tailor the game to the Australian environment. This was not advertised anywhere and the community was started from an online post and word of mouth. The server appears on a list along with thousands of other servers. You had no coding experience and saw the project of creating the server as a challenge for yourself. You have no associated degree that relates to gaming. The only degree you hold related to your profession. The server took a few hours to create and have working. Over the months you added additional parts to make the server more fun for you to play. You received no technical advice or technical assistance when starting the server. Once the server was up and running, the online community members helped out and made changes to the server in the sense of adding new parts. The online server you have created anyone can play at no cost, all they will require is the game and the modification. The main audience is anyone who wants to play a role playing game that is hosted in Australia. Your server runs a series of community made parts which changes the nature of the original game as an example: instead of what the games tells you to do, you instead do scripting to make the game more enjoyable. The extent of the maintenance is, if it freezers you will just click 'restart' or if you wish to add a new script, you just add it. Your main involvement is actually playing on the server. You spend minimal hours on the server. The hours are irregular due to your shift work; you can spend a couple of hours on the server and then not attend to the server for a couple of weeks. The modification used only allows XX players to be connected at once. Sometimes you and the community would fill an extra XX slot server in the holidays. Due to this they updated the server to hold XX gamers at one time. You have a XX person server online. This can be extended to extra servers started with the click of a button as they all run off the same computer. You can run multiply servers at once. You mainly run the one server but, in peak period you have had up to XX gamers play at once. This is all by your choice. In your long period of absence, members of your community will often make changes to the server for you. The server was not created to make a profit and for several months no donations were accepted. The initial start of receiving the donations in XXXX was the gaming community offering to make donations to enhance the quality of the game. The donations you receive are utilised to keep the server running efficiently and pay for upgrades. You have been offered donations for exchange of benefits on the server but have declined as you do not want to keep records of who owned what as this was created for enjoyment only. You do not rely on the donations. If they were to discontinue you would still run the server as you do this in your spare time for enjoyment. There is no consistency to the donations you receive. You do not ask for donations from the players. You went from receiving XX donations in one month to receiving more donations. Next month you would receive a lot less in donations. After the boom, in the last few months you have had from XX to XX people donate to the server. You were only receiving a minimal amount per month in donations up until XXXX, when it became more popular. This created a boom to the donations you were receiving. You put a limit per month that gamers could donate. From the start of receiving donations until the present day, you have roughly received around $XXX in donations; $XXX of these donations was received from XXXX to XXXX. The initial start-up costs of the server were around $XX, the continued running cost of the server was $XX per month, and this has increased to $XX per month. The other costs of the server you do not keep records of and do not know how much you have spent. You pay for the server as your internet speed is not sufficient to run the server. You do not have a business plan and have no knowledge of how to start one. If you were required to have one you would shut down the server. You do not have a separate account for the donations you receive. There is no plan or desire to expand the server. You have no time frame of how long you will host the server and you will continue to play until you find another game that captures your interest.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-1(1) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 995-1