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Ruling

Subject: Hobby v Business Income

Question

Is the money you earn from an online computer game assessable?

Answer

No

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You have a normal full-time occupation.

You are currently on leave.

To fill in time you have purchased a video game which you play online.

You can buy and sell items you have collected in the game to other players of the game, for real money.

You can only sell a maximum number of items at a time.

You might sell 3 to 4 items a week, but that's if you play in your spare time to collect items worth selling.

The smallest amount you are allowed to sell for is $x and the highest is $x.

The maker of the game takes a percentage of each sale depending on what the item is.

You have only sold $x worth of in game gear, the game itself cost you $x.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Summary

We do not consider that your activity has the necessary characteristics of a business for taxation purposes. Therefore, income derived from this activity will not be assessable.

Detailed reasoning

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. Federal Commissioner of Taxation 89 ACT 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 Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The factors 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

You play an online computer game where you collect items which can then be sold.

You commenced this activity mainly to fill in time and it is not your intention to engage in business. Your activity is not planned or carried on in a businesslike manner plus the prospect of making a profit is minimal due to size and scale of your activity

Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. Your sales activities are considered a hobby.

Therefore, any income you received in relation to this activity will not be assessable as ordinary income. In addition, expenses that you incurred in relation to this activity will not be deductible.

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