Edited version of private ruling

Authorisation Number: 1011487426892

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Ruling

Subject: Am I in business of creating art

Question 1

Are you in business of creating art?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2010

Year ending 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You were involved in an accident and suffered injuries. As part of your ongoing rehabilitation for your injuries and depression you create works of art from a specific medium.

Since you have been doing your rehabilitation you have completed more than 20 art pieces.

You have sold several pieces earning you approximately $X,000, and you have been commissioned to create art to the total value of $Y,000. You have not started the commissioned pieces and therefore you have not received income from them. You do not have formal contracts for supplying the commissioned art.

You had your first art exhibition in a recent year which resulted in your first art sales.

You applied for an art grant to assist in holding another exhibition, however as you were unsuccessful you are unsure if you can afford to hold the exhibition.

People have remarked that because of your progress you are a role model to other people with disabilities.

You generally advertise your art with business cards and via the art exhibitions. You also paid for a website however it is incomplete.

You did do some advertising for your first art exhibition However for your next exhibition you may receive funding from a government department to assist you with advertising costs.

You are self taught and know nothing about the art industry. You have not received art lessons.

You were previously successful in gaining a grant from an arts group to attend an event interstate. You are a member of the association that holds the event and occasionally contact them for advice.

You work from home and have converted part of your house into an art room.

To date you have not made a profit from your art, you don't know if you will make a profit, or if you will continue on after the next exhibition.

You have tried to keep all receipts for expenses and have the necessary paperwork for the pieces you have sold to date.

You do not receive other income from paid employment. However you do receive weekly compensation payments because of your accident.

You do not have a business plan for being an artist.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1

Tax Administration Act 1953 Section 12-190 of Schedule 1.

Reasons for decision

Summary

You are not in business of making works of art, regardless of whether you are commissioned to create them, as it is considered a hobby.

Detailed reasoning

Section 995-1 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 provides the Commissioner's view of the factors used to determine if you are in business for tax purposes. 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 circumstances

You have no business plan and the time spent creating your art is necessary for the ongoing rehabilitation for your injuries.

You do minimal advertising, primarily with business cards and publicity from the art exhibitions, and you have a website which is not operational. You do advertise your art exhibitions however you will have some financial assistance for the next exhibition.

Although you have created a large number of art pieces to date, you have sold only a small number of pieces and have been commissioned to only to create a small number of pieces. You do not have formal contracts for supplying the commissioned art.

To date your expenses are greater than the income from the art sales. As such you are not making a profit from your art and you are unsure if you will in the future.

You are also unsure of whether you will continue creating art after the next exhibition.

You have not planned, organised and/or carried on your artistic enterprise in a businesslike manner with the intention of making a profit.

After applying the facts you have provided to the indicators above, we consider that you are not carrying on a business for tax purposes, and that your activity is in the nature of a hobby. As such the income you receive from the sale of the specific art pieces, including where you are commissioned to create the art, is not assessable.

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