Edited version of private ruling

Authorisation Number: 1011503484569

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Ruling

Subject: Am I in Business

Question

Are you conducting a business as a music teacher?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

You are a trained music teacher.

You teach music to a small number of students per week.

You charge the going rate per student for each lesson.

This activity is conducted from your home and you do not incur any business expenses.

You do not advertise for students, but you are a member of an association which provides names of music teachers.

You have no intention of expanding the current scale of activities.

You have not registered a business name or website and you do not maintain any books or records of your accounts.

Reasons for decision

Carrying on a business

Section 995-1 of the Income Tax Assessment Act 1997 defines 'business' as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

The question of whether you are carrying on a business is a question of fact and degree. The courts have developed a series of indicators to be applied to determine the matter on the particular facts. Taxation Ruling TR 97/11 outlines, in the Commissioner's view, the factors that are considered important in determining the question of business activity. They are:-

(a) the activity has a significant commercial purpose or character;

· For an activity or venture to be a business, it is necessary that it be carried on for commercial reasons and in a commercially viable manner. Commercial purpose or character is an overall impression that is gained from the activities being undertaken as a whole. A strong indication would exist where the activity or venture being conducted is undertaken in a similar manner to that of other operators in the industry.

(b) whether the taxpayer has more than just an intention to engage in business;

· An intention to carrying on a business is an important but not determinative indicator. As well as an intention, there must also be activities which indicate that the person concerned is carrying on a business.

(c) whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

· A person who is carrying on a business normally has an intention to make a profit in the pursuit of their activity or venture.

(d) whether there is regularity and repetition of the activity;

· It is often a feature of a business that similar activities are repeated on a regular basis. The repetition of activities by the same person over a period of time on a regular basis points to the activity being a business. However, in some circumstances a one-off transaction can constitute a business.

(e) 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;

· An activity is more likely to be a business when it is carried on in a manner similar to that in which other participants in the same industry carry on their activities.

(f) whether the activity is planned, organised and carried on in a businesslike manner;

· An activity will more likely to be considered a business if it is planned, organised and carried on in a business like manner.

(g) the size, scale and permanency of the activity; and

· The larger the scale of the activity the more likely it will be that the taxpayer is carrying on a business. However the size or scale of the activity is not a determinative test and a person can carry on a business in a small way.

whether the activity is better described as a hobby, a form of recreation or sporting activity.

While no one indicator is decisive, there is often a significant overlap of these indicators. The indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the large or general impression gained from looking at all the indicators, although the absence of any one will not necessarily result in the conclusion that no business is carried on.

In your case you have the relevant qualification and experience to provide music lessons. You do not advertise as you are a member of an association which provides names of music teachers to potential students. Although you have no intention of expanding your current scale of activity, you are prepared to take on new students.

Your activity is conducted on a small scale and there is regularity and repetition as you currently teach a small number of students a week. The rate you charge is a similar rate charged by other music teachers. Because your business expenses are minimal there is a reasonable prospect of profit.

We consider that your activity constitutes the carrying on of a business. The income you derive from these lessons is assessable income. Any expenses incurred in carrying on the activity are allowable as deductions.

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