Edited version of private ruling

Authorisation Number: 1011615840535

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Ruling

Subject: Am I in business

Are you carrying on a business of restoring and creating items for sale?

No.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have an interest in collecting items that have been discarded, and either making something else out of them or restoring them to sell. You generally sell the items on EBAY, at markets and to friends.

After finding an item you will spend about an hour to an hour and a half working on the item at home before selling it. You only work on an item when you feel like it and you do not do it often.

The costs involved in your activity are EBAY and PAYPAL fees, string, thread and glue, and some postage paid for the delivery of the materials used.

You give all the income from the item sales to charities.

You do not have a formal business plan as it is a hobby to you.

You have not kept records of expenses.

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

Summary

We do not consider that your 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 collecting items that have been discarded, and either making something else out of them or restoring them to sell.

Your intention to sell the items is not to make a profit, as all income from the sales are donated to charities.

The selling of the items has limited commercial character or purpose. You have no intention to engage in business, you do not have a business plan, nor do you operate out of a business premises. You do not 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. Your sales activities are considered a hobby.

Therefore, any income you received in relation to this activity will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, expenses that you incurred in relation to this activity will not be deductible.