Edited version of your written advice

Authorisation Number: 1051315452739

Date of advice: 5 December 2017

Ruling

Subject: Income tax – Am I in Business? – GST- taxable supply – gambling supply

Issue 1

Am I in business?

Question 1

Were you carrying on a business in the 2017 income year?

Answer

Yes

Question 2

If you were carrying on a business in the 2017 income year, did that business commence on a certain date?

Answer

Yes

Issue 2

Goods and services tax

Question 1

Are you providing taxable supplies of providing business advice pursuant to Subdivision 9-A of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

Yes. You are providing taxable supplies of business advice pursuant to Subdivision 9-A of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act).

Question 2

Are you providing a gambling supply pursuant to Division 126 of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

No. You are not providing a gambling supply pursuant to Division 126 of the GST Act.

This ruling applies for the following period:

Income year ended 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

In 2016 you and your associate commenced an activity using your own bookmaker accounts and an exchange account to place bets on overseas markets.

You bet on a range of activities, including horse racing.

You initially made approximately $x,xxx each from the activity.

You then undertook the activity with some of your family and friends. You undertook the activity with approximately one person per week.

You pay your family and friend clients a flat fee for undertaking the activity.

You spent approximately X hours each per week on the activity and you made approximately $x,xxx each in this period.

You generally did not keep business records during this period.

During this time you were employed a number of days a week and your associate was also employed a number of days a week.

From a certain date you decided to experiment with undertaking the activity on a full time basis.

You then took the following steps:

● engaged an agent to source new (unrelated) clients. You pay the agent a fixed amount fee.

● commit to undertaking the activity with at least two people per week.

● change the fee paid to clients who are not family or friends to a lower flat rate (you still undertake the activity with family and friends on a less frequent basis).

● you began keeping more detailed records of money being made through the activity after this date.

You resigned from your employment in and your associate resigned from their employment after this date.

You spend approximately 15 hours each per week on the activity which includes 1-2 hours per week conducting research. You spent more time on the activity until your associate resigned from their employment.

You have had approximately 60 clients and made a significant sum from the activity.

Your strategy involves utilising incentives.

The activity could be conducted without incentives but you do not believe it would be profitable.

You rely on signing up new clients to continue the activity.

The clients always operate their own betting accounts.

You typically provide each client with an amount of your own money.

You then advise the client which bets to place.

You use your own betting exchange account in a way that ensures you make a profit on the outcome.

You do not have written contracts with your clients.

Once the activity is completed the client withdraws the winnings and pays this money to you, minus their fee which they retain.

You then you pay your agent their fee. The agent will not be paid unless the client pays you the money due under the agreement.

The average income you make from each client is $x,xxx -$x,xxx.

In some circumstances you utilise software to undertake the activity but sometimes you make your own calculations.

You do not have a business plan for the activity and have developed your strategy through trial and error.

You calculate ‘profit’ on a client by client basis.

You split any profit 50/50 between yourself and your associate.

You do not utilise a separate bank account for the activity.

Funding to commence the activity was sourced from savings.

Legislative changes will be implemented next year and you will not be able to conduct the activity in the same manner.

Your activity has returned a profit.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-10

Income Tax Assessment Act 1997 Section 15-15

Income Tax Assessment Act 1997 Section 995-1

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 126

Reasons for decision

Issue 1

Question 1

Were you carrying on a business in the 2017 income year?

Answer

Yes

Detailed reasoning

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. Assessable income also includes profit arising from the carrying on or carrying out of a profit-making undertaking or plan.

You are allowed to claim deductions for all losses and outgoings to the extent that they are incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Business is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to be any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

Taxation Ruling TR 97/11 sets out the general factors that are considered important in determining the question of whether a business activity is being carried on:

● 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.

The 'significant commercial purpose or character' factor is closely linked to the other indicators and is a generalisation drawn from the interaction of the other indicators.

Application to your circumstances

In your case, you have employed a system that ensures that your activity will produce a profit. The strategy relies on incentives to be profitable.

The profit generated by the activity is reliant on your agreements with your clients, and the ability to engage new clients to undertake the activity. You have engaged an agent in order to source new clients.

From a certain date you have undertaken the activity with approximately 60 unrelated clients. You pay a lower fee to unrelated clients than to your family and friends who undertake the activity. You began to keep more detailed records relating to the profits made from the activity from this time onwards.

You do not have written agreements with your agent or your clients, however your agent is active in ensuring the risk associated with the activity is mitigated. Therefore, while the strategy does exhibit business risk, it also reflects a system employed to mitigate that risk.

You undertake research and utilise software to assist in undertaking the activity. You sometimes use your own mathematical skills.

Due to your repeated and regular engagement of unrelated clients to undertake the activity with the purpose of producing a profit, we do not consider the activity is carried on merely as a pastime or hobby.

The activity is carried on in a sufficiently systematic and businesslike manner for you to be considered to be carrying on a business in the 2017 income year.

The income from the activity will be assessable as business income and you will be entitled to make deductions for costs associated with the activity in the 2017 income year.

Question 2

If you were carrying on a business in the 2017 income year, did that business commence on a certain date?

Answer

Yes

Detailed reasoning

We consider the particular date you have nominated to be the date that you commenced business activities, because it was on this date that you formed the intention to carry on a business in earnest.

This is demonstrated first of all, by your own determination that the date is significant.

It was after this point that you took steps to differentiate your business operations from the way you conducted the activity initially, including:

● engaging an agent to secure new unrelated clients

● committing to engaging an increased amount of clients, and to engage these clients on a more regular basis

● reducing the amount that you pay your unrelated clients, thus increasing the profit you are able to make from the activity

● keeping more detailed records relating to the activity

● resigning from your employment and relying on income generated from the activity

It is these factors which ultimately support the finding that you were carrying on a business and it is appropriate to align the start date of your business with the date that these changes were implemented.

Issue 2

Goods and services tax

Question 1

Are you providing taxable supplies of providing business advice pursuant to Subdivision 9-A of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

Yes. You are providing taxable supplies of business advice pursuant to Subdivision 9-A of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act).

Detailed reasoning

Taxable GST Supplies of providing business advice

GST is payable on taxable supplies. You make a taxable supply pursuant to Section 9-5 of the GST Act if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with the indirect tax zone; and

(d) you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

According to the facts provided, you receive payment from your clients for your provision of business advice. Therefore, we are of the view that the supply of business advice by you is for consideration. Consequently Section 9-5(a) of the GST Act will be satisfied.

We are of the view that you carry on an enterprise in the form of a business. A business is defined pursuant to Section 195-1 of the GST Act as: including any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Consequently section 9-5(b) of the GST Act will be satisfied.

According to the facts provided, the supply of business advice you are providing is connected with the indirect tax zone in Australia. Consequently section 9-5(c) of the GST Act will be satisfied.

According to the facts provided, the supply of business advice you are providing is connected with the indirect tax zone in Australia. Consequently section 9-5(d) of the GST Act will be satisfied.

According to the facts provided, your supply of business advice is not a taxable supply that is GST-free or input taxed.

As you are not a non-profit body, you will be required to be registered for GST once your turnover exceeds GST registration turnover threshold of $75,000.

Question 2

Are you providing a gambling supply pursuant to Division 126 of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

No. You are not providing a gambling supply pursuant to Division 126 of the GST Act.

Detailed reasoning

Gambling is dealt with under the GST, pursuant to Division 126 of the GST Act, by using a global accounting system that provides for an alternative way of working out your net amounts by incorporating your net profits from taxable supplies involving gambling. Section 126-35(1) of the GST Act states the meaning of gambling supply as a taxable supply involving:

(a) the supply of a ticket (however described) in a lottery, raffle or similar undertaking; or

(b) the acceptance of a bet (however described) relating to the outcome of a gambling event.

According to the facts provided, you are carrying on an enterprise providing business advice. The supply you are providing does not involve the supply of a ticket or the acceptance of a bet.

Therefore, we are of the view that you are not eligible to apply Division 126 of the GST Act in order to determine your GST turnover by using the global accounting system. Consequently Section 126-35 of the GST Act is not satisfied in your case.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).