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Edited version of your written advice
Authorisation Number: 1012720769362
Ruling
Subject: Am I in business
Question
Are you carrying on a business for taxation purposes?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commenced on
1 July 2014
Relevant facts and circumstances
You are currently carrying on activities.
You had one event several months ago, however no sales were made.
You had your next event recently. Your events are for family and friends.
You do not advertise. You work by 'word of mouth'.
You hold events at your own discretion.
You do not spend time regularly each week on your activities. You spend approximately one hour before an event.
You do not have a business plan for your activities.
Although you may make a small profit on your sales, the main purpose of the parties is not for profit. You do the activities to help fill in your spare time.
You have other sources of income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 995-1
Reasons for decision
Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident 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.
Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include 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 Income tax: am I carrying on a business of primary production? outlines some factors that indicate whether or not a business of primary production is being carried on. These factors equally apply to other types of businesses. No individual factor is determinative, but should be weighed up in conjunction with the other 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.
TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained'
Application to your circumstances
In your case you do not have a significant commercial purpose. Although you may make a small profit from sales, you do not have an intention to carry on a business or have a profit making purpose. Your events are mainly for family and friends. You do not advertise for clients or spend significant time each week on your activities. You do not have a business plan.
Based on the information you have provided we do not consider that your activities have the necessary characteristics of a business for taxation purposes. Your activities are regarded more as a hobby. Therefore, any amounts you receive in relation to this activity will not be assessable as ordinary income under section 6-5 of the ITAA 1997. It follows that no deductions are allowed in relation to any expenses incurred for your parties.
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