Edited version of private advice

Authorisation Number: 1051519640253

Date of advice: 21 May 2019

Ruling

Subject: Am I in business

Question

Does your creative work in producing YouTube videos satisfy the requirements of carrying on a business?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You create YouTube videos.

You commenced your YouTube channel approximately five years ago as a hobby. You were already playing video games and editing videos for enjoyment.

Your popularity grew to a point in which YouTube starting paying you for advertising space through Google Adsense.

You record and edit videos primarily centred around video games which you upload to YouTube. You then earn revenue through Google AdSense generated from advertisements placed on the videos by Google

You have a large number of subscribers and views on your YouTube channel.

Your primary focus for income has been on study or casual employment.

You were employed casually up until the subject income year, spending 20-40 hours per week at that occupation. You have now left that position to pursue a Post Graduate Certificate and spend about 20 hours per week on these studies.

In the subject financial year, you have spent an average of 10 hours per week working on your videos.

You use your own personal computer and home workspace (private bedroom) when editing and recording videos.

You do not personally keep records. Google tracks statistics, analytics and revenue through the YouTube Studio application.

You do not currently have a business plan.

You have not sought any professional or expert advice in setting up or conducting this activity.

You do not possess any qualifications or expertise in respect of my activity, all relevant skills are self-taught.

You are not a member of any relevant organisation and you do not subscribe to any relevant publications.

You have currently created approximately 170 videos since you started around five years ago.

You expect to create approximately 50 videos for the subject financial year and approximately 80 to 100 videos in the following financial year.

A breakdown of your advertising revenue per year over the last five years is:

Five years ago: under $XX

·         Four years ago: approximately $XXX

·         Three years ago: approximately $XXX

·         Two years ago: approximately $XXX

·         One year ago: approximately $XXX

·         Subject financial year: approximately $XXXX (YTD)

You advised that it is difficult for you to provide accurate income estimates as the range of potential earnings is large and so unpredictable and depends on the popularity of the relevant game.

Your projected income for the subject financial year for your video activity is $XXXX.

Your projected income for the following financial year for your video activity is $XXXX.

A breakdown of your costs over the last five financial years is:

·         Five years ago: $X

·         Four years ago: approx. $XX (Gaming Console, Game, Recording device)

·         Three years ago: approx. $XXX (Personal Computer, Monitor, Microphone, Webcam etc.)

·         Two years ago: approx. $XX (Recording device, various equipment)

·         One year ago: approx. $XX (Gaming console, game, computer upgrades)

·         Subject financial year: approx. $XXX (Computer upgrade, webcam, equipment)

Your projected costs for the following financial year are approximately $XXX (computer and equipment upgrades).

You fund any expenses with your own personal savings.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 6-5

Taxation Ruling TR 97/11

Taxation Ruling TR 2005/1

Reasons for decision

Section 995-1 of the Income Tax Assessment Act 1997 (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 facts.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? provides the Commissioner's view of the indicators that are taken into account when determining when a taxpayer is carrying on a business of primary production. These indicators are not confined to primary production activities but also are applied to all manner of business activities. The factors considered important 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.

Taxation Ruling TR 2005/1 specifically addresses the situation of professional artists, which includes 'an author of a literary, dramatic, musical or artistic work' and 'a production associate'. Paragraph 14 of this TR cites the case of Federal Commissioner of Taxation v Stone (2005), in which the High Court stated that

Professional artists and sportspeople have the distinction of pursuing as a business which many others undertake purely for personal pleasure. Therefore, such taxpayers must be able to distinguish themselves from enthusiastic amateurs. The fact that a taxpayer enjoys or even is passionate about what they do will not preclude a finding that they are carrying on a business.

Paragraph 16 of TR 2005/1 also states:

What distinguishes a professional from an enthusiastic amateur is the intention of the professional to carry on as a business that which others frequently pursue merely as a hobby or by way of a pastime (refer to the fourth meaning of 'professional' in the Macquarie Dictionary, Third Edition). A taxpayer will have the intention (as determined objectively, that is, having regard to all the surrounding circumstances), to carry on a business if they make the decision to commercially exploit the skills they may have developed pursuing the same activity as a hobby or pastime and this is reflected in their overt and planned activities.

Application to your situation

In your case, you are an enthusiast who has created a YouTube channel in relation to specific computer games. You state that you began this activity as a hobby, with no real intention of making a profit. You show a high level of regularity and repetition as you post frequent videos.

On ordinary indicators of a business, the size and scale of your YouTube channel which is continuing to grow shows that your activity is carried out on a large scale, reaching a large number of viewers and subscribers.

In determining whether you were conducting a business, we also took into consideration a number of factors including:

·         Your activity has grown from a hobby to a business.

·         There is purpose and intention to engage in the activity.

·         Your subscribers and views are significant.

·         Your advertising receipts are significant in 20XX and are expected to increase in 20XX.

·         There is a prospect of profit from the activity

·         You now believe you can make a profit from the activity.

·         The activity has significant commercial purpose.

·         The activity is planned, organised and carried out in a business-like manner.

·         There is repetition and regularity to the activity.

·         There is size, scale and permanency to the activity.

·         You display specific knowledge and skills.

As mentioned, the question of whether a business is being carried on is a question of fact and degree. You state that you began this activity as a hobby, with no real intention of making a profit. However, as stated in Federal Commissioner of Taxation v Stone, the fact that you enjoy or are passionate about making YouTube videos does not preclude a finding that you are carrying on a business.

Further, with reference to TR 2005/1, you have distinguished yourself from an enthusiastic amateur or hobbyist by commercially exploiting the skills you have developed in pursuing what could appear to be a hobby or pastime, i.e. the making of YouTube videos. In doing so, you have shown the intention, having regard to all the surrounding circumstances, to carry on a business.

Therefore, upon consideration of all the relevant factors, the Commissioner's view is that your YouTube channel activity has evolved significantly and now amounts to carrying on a business for income tax purposes.

As your activities amount to that of carrying on a business, the income received will be assessable income under section 6-5 of the ITAA 1997.

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).