Edited version of private ruling

Authorisation Number: 1011611618693

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Ruling

Subject: Am I in business of professional photography

Are you carrying on a business of professional photography?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You are employed full time and are required to travel nationally and occasionally internationally for work.

You also have an interest in photography. You have purchased a professional quality camera, supporting equipment and accessories. You have an interest in photographing landscapes and structures.

Travelling with work provides you with a great opportunity to capture images from around Australia.

You photograph in your spare time during the evenings and early morning.

You consider photography a hobby, from which you are lucky to make some money on the side.

You have not studied photography or received photography instruction.

A number of years ago you created a website for personal use on which you posted your pictures. You have also uploaded photos to a photo sharing website.

A large international stock photography company accessed your photos on the website and invited you to apply to have your photos uploaded to their sales database. Since then you have uploaded a number of photos, and you have sold numerous images (some multiple times) and have made approximately $1,000 from sales. You receive a commission from the sale of your photos.

You have also had interest from companies and individuals wanting to purchase your photos privately. However, you have declined at this stage as you are still learning the processes and saleability of your work. You are considering expanding to transact with art galleries, companies and private collectors in the future.

You will not perform your photography full time as your current full time employment is well paid and provides greater work opportunities. However, you will continue to create photos and upload them for sale on the website.

You expect to recover the costs associated with the purchase of your camera and accessories, and potentially make a profit over the next 12 to 24 months. However, this is dependant on you continuing to upload new photos to the sales database, and the global customer demand for your images. Because of this you cannot estimate the turnover of your activity in the future.

You do not have a formal business plan. However, you have kept records of equipment purchases and you receive a statement from the sales database company each month in which you make a sale. You have not kept records of other costs associated with your activity.

You perform the editing of your images out of your home.

You do not formally advertise your photography activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Summary

We do not consider that your photography activity has the necessary characteristics of a business for taxation purposes. Therefore, income derived from this activity will not be assessable.

Detailed reasoning

Ordinary income

Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts.

Carrying on a business

Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

The case of Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922 stated that whether or not an activity amounts to carrying on business for taxation purposes is a question of fact. There is no exhaustive or determinative definition which can be applied to determine this matter. Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, however, provides that the test for determining whether or not a business is being carried on is both subjective, which considers the individuals purpose at the relevant time, and objective, which considers the nature and extent of the activities undertaken.

Taxation Ruling TR 97/11 provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The factors 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 gained.

Application to your circumstances

In your case, you have an interest in photography and have been able to sell some images on an international stock photography website.

You consider your photography activity a hobby.

You are employed full time and only perform your photography activity during your spare time. It can be expected that a business engaged in professional photography would devote many hours to that activity thus forming regular income, business and sales patterns.

The activity has limited commercial character or purpose. You do not have a business plan, nor do you operate out of business premises. However, you do keep records of your transactions.

Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. Therefore, any income you receive in relation to this activity will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you incur in relation to this activity will not be deductible.