Edited version of private ruling

Authorisation Number: 1011574613414

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Ruling

Subject: Am I Business

Whether your part ownership of livestock constitutes the carrying on of a business activity for the purposes of section 6-5 and 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No.

This ruling applies for the following periods

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

The scheme commences on:

1 July 2006

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 bought a 10% interest in the livestock in 2003. You retained your 10% interest.

Your intention in respect the livestock has not changed since 2006 and you continue to own a 10% share.

You have not purchased any similar livestock since you received your private ruling in 2006.

You do not maintain computer records or accounting records with respect to the livestock income and expenses.

You do not have any day to day involvement in terms of managing or maintaining the livestock.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Details

To determine whether someone is carrying on a business the facts of each individual case must be examined. In Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548 Webb J said:

The test is both subjective and objective. It is made by regarding the nature and extent of the activities under review as well as the purpose of the individual engaging in them, and as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained.

Taxation Ruling TR 97/11 provides guidance of the indicators that are relevant to whether or not a person is carrying on a business. The courts have held that the following indicators are relevant:

· whether the activity has a significant commercial purpose or character (this indicator comprises many aspects of the other indicators)

· 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 repetition and regularity of the activity

· whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business

· whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at 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 a sporting activity.

However, the weighting to be given to each indicator may vary from case to case.

The Commissioner's view on the criteria to be applied in determining whether a person is carrying a business is stated in Taxation Rulings which the Commissioner indicates that the activity needs:

· to be conducted with an intention to profit, not for pleasure, and

· to be sufficiently considerable, systematic and organised, and

· to be commercially viable, and

· not to rely primarily on chance as distinct from business acumen for its success.

To determine whether your activities constitute a business, and in turn determine whether your income is assessable and deductions allowable, it is necessary to review your activities against the relevant guidelines.

You have a 10% interest in the livestock. You do not have an interest in any similar livestock. You do not have any day to day involvement in managing or maintaining the livestock. You do not maintain any computer records or accounting records for the livestock.

After considering the business indicators above, on the facts in this case it is considered that holding a 10% interest in the livestock does not constitute carrying on a business, the activity would be better described as a hobby.

Accordingly, any receipts associated with the activities are not assessable under section 6-5 of the ITAA 1997 and any deductions are not allowable under section 8-1 of the ITAA 1997.

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