Edited version of private advice

Authorisation Number: 1052105628126

Date of advice: 27 April 2023

Ruling

Subject: Business or hobby - sports coach

Question

Are you carrying on a business as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) during the 2022-23 income year?

Answer

You are not carrying on a business during the relevant income year, however, income received for this activity is assessable under section 6-5 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

30 November 20XX

Relevant facts and circumstances

You have agreed to take on a coaching position with a sports club ('The club'). The team is considered 'semi-professional'.

You found out about this position when you had a conversation with the club about available coaching positions and learned the position was available.

You have signed a contract in relation to this position. As a part of this contract, you agree to provide services outlined in the contract for a fee, you cannot subcontract or assign any of these services without approval from the club and you are not considered an employee.

The fee includes monthly payment in arrears. The total payment is $XXX. The fee includes all costs, expenses and disbursements in connection with the services.

The services you provide under the contract include the following:

•         Organise, execute and supervise practices and ensure all team members receive appropriate level of training, supervision and guidance.

•         Attend and direct all match days.

•         Provide performance feedback on team members in the manner agreed with club representatives.

•         Report any disciplinary issues to the club.

•         Inspect and ensure that all facilities and equipment are compliant with appropriate safely standards of the sport.

•         Comply with all requests from the club regarding the undertaking or completion of any courses etc, or provision of information in order to comply with Working with Children requirements and any other requirements of government authorities.

The club provides a training field which is hired from the council. There is training equipment supplied by the club however, this is frequently used by the first and reserve teams. Due to this, you supply your own training equipment to ensure your team has equipment available each session.

You estimate that you spend approximately XX hours a week for the duration of the season on these activities.

You estimate your weekly travel distance to be XXX kilometres or XXX kilometres for the season.

You have previously played and coached for the club in a paid capacity.

You undertook a coaching license previously and have already commenced the process of upgrading your license.

You are passionate about the sport having an interest in various areas of the game.

You currently work in an administrative role full-time. This role is unrelated to your coaching position.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 8-1(1)

Reasons for decision

Determining whether or not an activity amounts to carrying on a business is a matter of fact and degree.

Subsection 995-1(1) of the ITAA 1997 defines 'business' to include 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

However, this definition simply states what activities may be included in a business. It does not provide any guidance for determining whether the nature, extent, and manner of undertaking those activities amount to the carrying on of a business.

Taxation Ruling TR 97/11 Income tax: Am I carrying on a business of primary production? provides indicators that the courts have concluded are relevant when determining whether a business is being carried on. These indicators are no different in principle, from the indicators as to whether activities in any other area constitute carrying on a business.

The indicators provided in TR 97/11 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 repetition and regularity of the activity;

•         Whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

•         The size, scale, and permanency of the activity;

•         Whether the activity is better described as a hobby, a form of recreation or a sporting activity.

Each case must be judged on its own particular facts and the determination of the question is generally a result of a process of weighting all the relevant indicators together to form a general opinion of whether a business is being carried on.

Application of the indicators to your circumstances

More than just an intention to engage in business

Whether or not you have more than an intention to carry on a business is important when determining the difference between business and hobby activity. You have a life-long passion in relation to the relevant sporting activity. You have spent many years involved with the club both previously as a player and a coach in a paid capacity. Although you sought out a vacant coaching role by having a conversation with club representatives this is not necessarily indicative of intention to engage in business. The nature of the payment in relation to this activity must also be examined to determine its purpose and we must also consider any other personal motivations that are not representative of intent to engage in business.

In this situation, the profit received from this activity after you deduct the estimated expenses is negligible and would neither be feasible long term for a business nor would be typical of other activities in this line of work that would be considered carrying on a business. The payment received for this activity is a fee for services under the contract and is likely designed for the purpose of covering expenses incurred during the time period rather than for the purpose of profit.

You also have your basic coaching license, and you are currently in the process of upgrading that license. Any intention to seek out a coaching position could be explained by an intention to retain experience in a coaching capacity through the club of which you already have a long-standing relationship with and not motived by profit.

Given this information, there is no intention to engage in business.

Prospect and Purpose of profit

Whether or not there is a prospect and purpose of profit is a key factor in determining the difference between a business and a hobby. In your situation, although you will likely make a small profit from the fee, the purpose of the fee is not for profit, but to pay for services and cover any expenses that would be incurred from undertaking the services. Based on this, the activity does not have the prospect and purpose of profit.

Repetition and regularity

Your activity requires that you spend approximately XX hours a week for the duration of the season. This is a significant commitment of time, and the nature of that time is spent performing duties related to the activity such as attending and directing training sessions, attending, and directing match days and engaging in play development. Based on this information the activity would be considered regular and repetitious.

Size, scale, and permanency

It is common for the size, scale and permanency, and repetition and regularity indicators to be intricately linked. As the repetition of an activity increased so does the amount of work that is completed and subsequently the income that is received.

In this situation, the services provided under the contractual agreement are typically of a more complex nature and executed to a higher degree than that which would be expected of someone participating in a hobby or form of recreation, however, the actions are not complex enough to satisfy the size and scale of a commercial activity.

When factoring the lack of permanency due to the contract being for less than one year it is evident that size, scale, and permanency is not present at a commercial scale.

Whether the activity is planned, organised, and carried on in a business-like manner such that it is directed at making a profit.

In your situation planning and organisation are an inherent characteristic of a sporting coach. It is expected that you plan and organise training sessions. These actions, however, are not characteristically directed at making a profit. Any increase in planning or organisation would not result in increased profits from this activity as you are paid a set amount as per your agreement. It is not considered that this activity is planned organised and carried on in a business-like manner such that it is directed at making a profit.

Whether the activity is of the same kind and carried on in a similar manner that of the ordinary trade in that line of business

You work approximately XX hours a week for the duration of the season. You engage planning and organising training sessions and facilitation of match days. It would be reasonable to assume the activities you undertake when performing this activity would be similar or the same to any other activity in this line of work that could be considered a business.

Conclusion

In this case, your activity satisfies the regular and repetitious nature expected of a commercial activity in this line of work, however, the lack of size, scale and permanence, prospect and purpose of profit and lack of intention to engage in business provide a better insight into the context of which this activity is conducted. We can conclude that the absence of these indicators show that the activity lacks the commercial purpose and character that would be expected of an activity in this line of work and is not carrying on a business for tax purposes.

Assessable income

Section 6-5(1) of the ITAA 1997 stipulates that your assessable income includes income according to ordinary concepts which is called ordinary income.

Taxation Ruling TR 1999/17 Income tax: sportspeople - receipts and other benefits obtained from involvement in sport provides the Commissioner's view as to when receipts are assessable income. It applies to officials such as coaches, as well as participants. Paragraph 17 of TR 1999/17 sets out the relevant factors used when determining whether an amount is ordinary income as being:

•         whether the payment is the product of any employment, services rendered, or any business;

•         the quality or character of the payment in the hands of the recipient;

•         the form of the receipt, that is whether it is received as a lump sum or periodically; and

•         the motive of the person making the payment.

An amount paid for the provision of services to benefit the payer will be assessable income even if there is no employment relationship (paragraphs 25 and 26 of TR 1999/17).

Application to your circumstances

You currently perform the role of coach for a sports team. You signed a contractual agreement to provide a variety of services under that agreement for a fee. You are not an employee and cannot subcontract your services to any other entity.

An analysis of your activity against indicators in TR 97/11 concluded that you're not carrying on a business for tax purposes.

It is considered that the income received from this sporting activity does not constitute business income, however, it is assessable under section 6-5 of the ITAA 1997.It is ordinary income as it is for services provided for a fee.

Note: Any losses or outgoings incurred in the gaining or producing assessable income may be deductible under subsection 8-1(1) of the ITAA 1997.

You should note that if your level of activity changes in the future, that the status of your activity may change to one of a business. You should continually reassess this status on an annual basis by considering (i) if your level of activity has changed and (ii) whether the status of your activity has changed to one of a business

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