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Edited version of your private ruling
Authorisation Number: 1012307344063
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Ruling
Subject: Am I in business
Question
Will you be considered to be carrying on a business of primary production with your livestock activity in the years ended 30 June 2012 to 30 June 2014?
Answer
No.
This ruling applies for the following period
For the years ended 30 June 2012 to 30 June 2014
The scheme commenced on
July 2011
Relevant facts
The property is vacant land.
A small number of young livestock were purchased with the purpose of being a hobby.
You have full time employment and attend the livestock after hours, a few times a week.
You do not have an Australian Business Number.
You had no sales of livestock between July 2011 to June 2012.
You plan to sell approximately 1-2 livestock during the period July 2012 to June 2013.
You plan to sell the remainder in 2013 and 2014.
You estimate that your costs will exceed income over this period. You may break even if livestock prices are high.
You were raised on a farm and enjoy farming livestock. That is the sole reason why you are conducting this activity.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
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 97/11 incorporates the general factors.
In the Commissioner's view, the factors that are considered important in determining the question of business activity 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.
Applying the indicators to your circumstances
You have indicated that you do not intend to conduct a business, but intend to conduct the activity on a small scale as a hobby. It will not have a significant commercial purpose. You were raised on a farm and enjoy farming livestock and are doing it for this purpose. You do not have an intention or expect to make a profit, but may break even if livestock prices are high. You do not have an ABN and are not conducting the activity in a business like manner.
Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. It is more in the nature of a hobby. 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. 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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