Edited version of private ruling

Authorisation Number: 1011558521813

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Am I in business

Are you considered to be conducting a business?

No.

This ruling applies for the following period

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commenced on

1 July 2009

Relevant facts

You manage a small home activity.

You opened to the public several years ago.

You charge fees per person, children under a set age are free.

You maintain the activity seven days a week and pay for all maintenance costs yourself.

You do not run the operation as a profit organisation and the small amount of income you receive each year from visitors goes back into the work and maintenance of the property.

The costs far exceed any income received each year and you have been operating as a loss since you opened.

Due to the weather you cannot operate when it is raining.

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:-

· whether 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.

· 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.

· 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.

· 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.

· 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.

· 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.

· 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.

Factors to indicate a hobby include whether the taxpayer intends to make a profit, the intention of the taxpayer, and whether the activity is carried on in the same manner as a normal, ordinary business activity.

In your case, you have operated at a loss since you opened. It appears that you do not have an intention to engage in a business, and there is little prospect to make a profit in the future. The small amount of income you receive each year from visitors goes back into the work and maintenance of the property. Overall, there does not appear to be a significant commercial purpose to the operation.

It may be possible to operate a business of this size, however, other indicators would need to be present before you would be considered to be carrying on a business. There is some regularity and repetition in terms of the maintenance of the property and you operate each year subject to weather conditions.

It is difficult to compare the operation to other operations due to its uniqueness. However, if we compare the operation to others of similar nature it doesn't appear to be carried on in a similar manner.

In conclusion, based on the indicators discussed above, you are not carrying on a business and your activity is best described as a hobby or recreation. The income you derive from the activity is not assessable and any expenses incurred from the activity are not deductible.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).