Edited version of private ruling

Authorisation Number: 1011579997164

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Ruling

Subject: Am I in Business?

Question

Are you carrying on a business as an illustrator?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

Several years ago you started producing digital art for your own enjoyment.

You joined a weekly, on-line challenge to produce a piece of artwork that matched a theme of the week.

You operate a website and blog.

As you gained greater skill at digital art you joined a website and showed some of your favourite artwork on this site. You had hoped to gain some illustrative work from this but made no effort to market yourself as an illustrator either on this site or on your own website/blog.

People are able to contact you through a 'contact me' hyperlink on your blog.

Over the past two years you have had three people approach you to do work for them, which have resulted in small payments for your efforts, although none of these payments represented value for your effort/time. Payment would roughly equate to less than $5 per hour.

You completed these tasks for the satisfaction of having your work published. You did not include these payments in your taxable income as you considered that this was gained as part of your hobby and not business income.

Recently you received a request for completion of some illustrations, this time from a professional book publisher who has seen your work on the illustrators website. The total contract price is the standard payment made by the publisher for work of this nature and was not negotiated by you.

The total payment includes the purchase of the complete rights to the illustrations.

The publisher requested your ABN which you are in the process of applying for.

All of your illustration work is undertaken from your home and at times convenient to yourself.

You are employed three days a week in unrelated employment.

You use a computer that was purchased a number of years ago and utilised by all members of your family.

You have no business plan.

Relevant legislative provisions

Income Tax Assessment Act 1997 8-1 and

Income Tax Assessment Act 1997 6-5.

Reasons for decision

Summary

On the weight of evidence it is considered that you are carrying on a business of an illustrator. You operate a web page, advertise on an Illustrators webpage and receive payments standard to the industry for work you produce.

Detailed reasoning

Carrying on a business

The Commissioners view on whether a taxpayer is carrying on a business is found in Taxation Ruling TR 97/11. TR 97/11 states the courts have held that the following indicators are relevant to the question of whether a taxpayer's activities amount to the carrying on of a business:

· whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

· 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;

· whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

· the size, scale and permanency of the activity; and

· whether the activity is better described as a hobby or a form of recreation.

The above indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the general impression gained and whether these indicators provide the operations with a 'commercial flavour'. However, the weighting given to each indicator may vary from case to case.

In your situation, the Commissioner considers you to be carrying on a business of an Illustrator since you entered into the contract with new contract because the general impression gained is your from then on your activity has had a commercial flavour.

Factors that support this conclusion include:

· There is repetition and regularity of the activity; you produce artwork on a weekly basis.

· You advertise your work on an Illustrators website as well as on your own website and blog.

· You have produced illustrative work for payment in the past, albeit for a reduced fee.

· The payment you will receive for your current request is a standard payment made for commercial work of this nature.

· You are in the process of applying for an ABN

· You conduct your activities on a similar size and scale to other illustrators

Conclusion

In conclusion, the Commissioner considers you are carrying on a business as an illustrator.

Therefore, the income from the activity earned from the new contract and any after that is assessable under section 6-5 of the ITAA 1997. The losses related to the activity from that point on are allowable as deductions under section 8-1 of the ITAA 1997.