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Edited version of your private ruling
Authorisation Number: 1012331582326
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Ruling
Subject: Business v hobby
Question
Are the amounts received from providing services assessable income?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
You have an Australian Business Number (ABN).
You have prior experience and specialised knowledge in the field.
In the past you provided your services to multiple clients.
You now provide your services to only one regular client.
You spend several hours a week on this activity.
You supply some of your own tools.
You issue fortnightly invoices and charge a commercial rate for the work you undertake.
You do not advertise your services.
You are not taking on any further clients.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 995-1
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.
Generally, where a person receives remuneration as a result of providing their services or labour, the amounts are included in the taxpayer's assessable income as ordinary income.
Taxation Ruling TR 97/11 provides the Commissioner's view on the factors used to determine if you are in business for tax purposes. Theses 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
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 given and the facts of each case.
In your case you have the relevant qualifications and experience in the services you provide to your client. The rate you charge is a similar rate charged by others in your field and you issue a regular invoice to your client. You have an ABN and you derive a profit from the activity.
Whilst your approach to the activity can be regarded as businesslike and you have the element of regularity and repetition, the activity is conducted on a small scale and is not being carried out in a similar manner to that of other business' in the industry.
After applying the facts you have provided to the indicators above, we consider that you are not carrying on a business for tax purposes. However, It is considered that the income you receive from the work you undertake is remuneration for your personal exertion, and is assessable as ordinary income.
Therefore, any income you receive in relation to this activity in the 2012-13 financial year will be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, expenses that are incurred in relation to this activity may be deductible.
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