Edited version of private ruling

Authorisation Number: 1011555908307

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Ruling

Subject: Are you carrying on a business

Question and answer

Are you carrying on a business of electronic equipment repairs?

No.

This ruling applies for the following periods:

1 July 2007 to 30 June 2008

1 July 2008 to 30 June 2009

1 July 2009 to 30 June 2010

The scheme commences on:

1 July 2007

Relevant facts and circumstances

You are a full time Information Technology (IT) specialist/software engineer.

You purchase faulty electronic equipment from an auction company and repair them to sell on EBAY. You have been selling on EBAY for a number of years.

You advised that generally you make a loss considering the costs involved in purchasing, repairing and selling the items. Occasionally you do make a profit on individual sales.

You buy and sell when you feel like it, and generally only sell when you need more money for purchasing new stock.

You have electrical stock stored in your garage and house.

Your sales reached its peak in two years. You also expect sales to be high in the nest year, due to the fact that you have spent too much money purchasing stock and you need to sell stock to recover some of these funds. If you did not sell you would not be able to continue your activities.

You do not have a business plan and you do not intend to perform your activities as a business.

You do not consider your activities as a business, but rather as a hobby.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

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

Income Tax Assessment Act 1997 Section 6-10

Reasons for decision

Summary

You are not carrying on a business of electronic equipment repairs.

Detailed reasoning

Assessable income

A taxpayer is liable to tax on their taxable income derived during the income year. Taxable income is calculated by subtracting allowable deductions from the taxpayer's assessable income.

Ordinary income

Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts.

Statutory income

Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is income that is not ordinary income but is included as assessable income by specific provisions of the tax law.

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 case of Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922 stated that whether or not an activity amounts to carrying on business for taxation purposes is a question of fact. There is no exhaustive or determinative definition which can be applied to determine this matter. Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, however, provides that the test for determining whether or not a business is being carried on is both subjective, which considers the individuals purpose at the relevant time, and objective, which considers the nature and extent of the activities undertaken.

Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes.

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 gained.

Application to your circumstances

In your case your personal interest is repairing faulty electronic equipment. Your electronics repair is a hobby or pastime. Your intention to undertake the buying and selling of the equipment was not for profit making purposes, in fact you do not expect to make a profit from your pastime.

The activity of buying and selling electronic equipment 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. Although you have been constantly trading electrical equipment it has not resulted in a profit.

In addition, your main source of income is from your regular occupation and the activity is undertaken in your spare time. It can be expected that a business engaged in the purchase, repair and sale of electrical equipment 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 income you received in relation to this activity for the years ended 30 June 2008, 2009 and 2010 will not be assessable under section 6-5 of the 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.

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