Edited version of private ruling

Authorisation Number: 1011625854558

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Ruling

Subject: am I in business

Are you carrying on a business of photography?

No

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You both have permanent employment which is your main income.

You share a common interest as photographers.

You undertook photography as a part time hobby in your spare time.

You funded your own extra training such as university and adult night school.

For the 2009-10 income year you had a total of three sales.

You spend five hours of photography for each sale which are only ever on a weekend in your spare time.

Each of you provide your own camera equipment, personal computer for photo editing and purchase all other equipment such as CD's and covers.

You use your own cars for travel.

You have not undertaken any market research on professional photography.

You do not have a business plan and have a small advertisement in the Yellow pages and website that friends made up for you at no cost.

You do not supply invoices.

Reasons for decision

Summary

Your activities do not constitute the carrying on of a business for taxation purposes. Therefore, any money earned from the activity is not assessable income and you are not entitled to deduct expenses incurred in earning this income.

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 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.

Taxation Ruling TR 97/11 sets out the following factors or indicators that the courts and tribunals have taken into account in determining if a business exists for tax purposes:

· Whether your activity has a significant commercial character, that is, whether your activity is carried on for commercial reasons and in a commercially viable manner.

· Whether you have more than just an intention to engage in business. You need to have made a decision to commence business and have done something about it. If you are still setting up or preparing to go into business, you might not yet have commenced business.

· Whether you have a purpose of profit as well as a prospect of profit. You need to be able to demonstrate a genuine belief that you will make a profit, even if you are unlikely to do so in the short term.

· Whether there is repetition and regularity to your activity, as businesses usually repeat similar types of activities, although one-off transactions can constitute a business in some cases.

· Whether your business is operated in a way that is similar to other businesses in your industry.

· Whether the size or scale of your activity is consistent with other businesses in your industry or is sufficient to allow you to make a sustainable profit.

· Whether your activity is planned, organised and carried on in a business-like manner. This may be indicated by business records and books of accounts, a separate business bank account, business premises, licences or qualifications and a registered business name.

· Whether the activity is better described as a hobby or recreational activity.

While no one factor can be used to determine whether you are carrying on a business, taken together they should indicate whether your activity is a business.

Application to your circumstances

You both have a common interest in photography and have set up a small advertisement and website site for advertising your activities.

You are employed full time and have only performed your photography on weekends in your spare time. You have had three sales in 12 months. It can be expected that a business engaged in professional photography would devote many hours to that activity thus forming regular income, business and sales patterns.

The activity has limited commercial character or purpose. You do not have a business plan, nor do you operate out of a business premises and have not undertaken any market research on professional photography.

Based on the information you have provided we do not consider that your current photographic activities have the necessary characteristics of a business for taxation purposes. Therefore, any income you receive in relation to this activity will not be assessable under subsection 6-5(1) of the ITAA 1997 as ordinary income and you are not entitled to deduct expenses incurred in earning this income.

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