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Ruling

Subject: Am I in Business

Question

Are you carrying on a business?

Answer:

No

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You are a student who does not hold any professional qualification.

An education facility has asked you to take over a lesson at the education facility as the original tutor has moved interstate. Your reason for doing this is that you love what you do.

You have not entered into any contracts with the education facility to provide your services.

The education facility will pay you a small amount of the money. The amount paid by the education facility is to cover your expenses.

You do not advertise your services.

Your clients are the students from the education facility.

You do not have an Australian Business Number.

You devote a very small amount of time to this activity.

You will cease this activity at the end of the year.

Relevant legislative provisions:

Income Tax Assessment Act 1997 subsection 6-5(1).

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 995-1.

Reasons for decision

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 8-1 of the ITAA 1997 allows you to claim a deduction for a loss or outgoing that is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business to gain or produce assessable income. These deductions are limited by the exclusion of losses or outgoings that are capital, private or domestic in nature.

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 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 2005/1 provides guidance on the principles to be applied in determining whether an artist is carrying on a business. Paragraph 10 of TR 2005/1 states that the courts have held that the following indicators are relevant to the question of whether a taxpayer's activities amount to the carrying on of a business:

· 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.

Applying the indicators to your circumstances

All of the above factors have been considered in light of your circumstances and the following conclusion has been reached. From the information provided your activity has little or no significant commercial purpose. It would be expected that a business engaged in this activity would charge a fee for the services they provide to the general public and provide their services to a number of businesses and education facilities. However, in your case you do not charge a fee. While you may receive a small amount of income from this activity you expect most of the payments will be defrayed in meeting your expenses. The size and scale of the activity appears to be very small as you only provide tuition to a local education facility on a limited basis. There is no permanency to the activity as it is expected to cease at the end of the year.

Currently your intention is not to engage in a business activity as you are still studying. There is no indication the activity is being carried on in a business like manner, this is supported by the fact that you do not have a business plan and there is no profit motive as you are undertaking the activity because you love it. You do not hold any qualifications as you are still at studying at an education facility and there is no indication that you intend to keep business records in relation to the 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, the information you provided suggests that the activity is a hobby or pastime for you.

Therefore, any income you may receive in relation to this activity will not be assessable under section 6-5 of the ITAA 1997 as ordinary income or under any other provision of the tax law. In addition, any expenses that may be incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997.

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