Edited version of private ruling

Authorisation Number: 1011528268132

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Ruling

Subject: Am I in Business?

Are you carrying on a business of selling CDs?

No.

This ruling applies for the following periods:

Year ending 30 June 2010 and year ending 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have been collecting CDs for more than 20 years.

The cost of the CDs ranged from $10 to $30 per CD.

You have several thousand CDs in your collection.

A few years ago you began selling a few CDs on eBay whilst buying other sellers collections.

You began transferring the music you liked to your computer and ipods so as to save room as your collection took up one whole room.

You opened a shop on eBay to sell your CDs so to save on fees and so you did not have to re-list items or have auctions on set days.

You have ceased buying new collections.

You have always worked in full-time or part-time employment. When the business where you had worked was sold you decided to spend the next year trying to sell your entire collection excluding your favourites.

Most of your CDs sell for between $5 and $15.

You expect your net receipts per month to be between $1,400 and $2,400 after postage and ebay/paypal fees.

You estimate that you have spend over $150,000 over your lifetime on CDs and will only be recouping a small portion of what you paid.

You are not registered for GST and do not have an ABN for this activity.

You have no business plan.

You do not intend to advertise the shop on eBay anywhere.

You have not sought any financial or tax advice.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(1).

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 995-1.

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Summary

The activity of selling second hand CDs that you are undertaking lacks commercial character or purpose. Therefore, you are not considered to be carrying on a business.

Detailed reasoning

Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income according to ordinary concepts. This ordinary income includes amongst other things, income from salary and wages and business operations.

Section 8-1 of the ITAA 1997 allows you to claim a deduction for a loss or outgoing that is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business to gain or produce assessable income. These deductions are limited by the exclusion of losses or outgoings that are capital, private or domestic in nature.

Carrying on a business

Section 995-1 of the 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 particular facts.

Although Taxation Ruling TR 97/11 discusses these factors in the context of a primary production business, it has general application. Its principles are not restricted to questions of whether a primary production business is being carried on.

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.

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.

Applying the indicators to your circumstances

In your case, you collected CDs because of your personal interest. Your CD collecting was a hobby or pastime. Your intention to undertake the selling of your CDs was not for profit making purposes but rather to clear room.

The activity of selling second hand CDs that you are undertaking has limited commercial character or purpose. You do not have a business plan or operate out of business premises. You do not keep records of your transactions and sell the CDs in most instances for less than you originally paid for them. The size and scale of the activity is small and may not continue beyond the period of time that you have reduced your collection to the desired size.

You intend to spend no more than a few hours a day. It can be expected that a business engaged in the sale of CDS would devote many hours to that activity thus forming regular income, business and sales patterns.

Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. Therefore, any amounts you may receive in relation to this activity in the 2009-10 and 2010-2011 income years will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that may be incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997.

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