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Edited version of your written advice
Authorisation Number: 1051195629587
Date of Advice: 27 February 2017
Ruling
Subject: Am I in business
Question
Are you carrying on a business for tax purposes?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2017
Year ended 30 June 2018
Year ended 30 June 2019
The scheme commenced on
1 July 2016
Relevant facts
You and others rent a property to live in.
You and another person are named on the tenancy agreement. The agreement only allowed two names on the contract.
You have a common fund for the house rent, bills, maintenance and other common expenses. The bank account holding these funds are in your name only.
All four of the tenants contribute funds to the account that is used to pay the rent and other expenses.
The funds and account are open for inspection for all members of the house.
The bank account is only used for the expenses relating to the tenancy.
No profit or personal benefit is rendered to any of the tenants.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
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'.
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. The question of whether a business is being carried on is a question of fact and degree.
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' (Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' (Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case, and no one indicator will be decisive (Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922).
Applying the relevant indicators to your circumstances
In your case, you are renting a property with other people. You share expenses and have a bank account for the associated funds. There is no business plan to make a profit from the arrangement.You do not carry out other activities that indicate a business.
The mere collection of funds to be used to pay for the associated expenses of the property does not indicate the existence of a business. There is no commercial purpose in the arrangement.
After weighing up the relative business indicators and objective facts surrounding your case it is considered that you are not carrying on a business in relation to your arrangement. That is, your activities are not carried on as a business for taxation purposes.
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