Edited version of private ruling

Authorisation Number: 1011719889538

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Ruling

Subject: Am I in business?

Question

Are you carrying on a business of training and driving harness racing horses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You train harness racing horses and race them during the course of the year. You do not advertise your services. Any net monies gained from the activity are minimal and no taxes have been paid on your profits over the last six years that you have been lodging business returns.

You have reduced the amount of training that you do. The number of horses that you now train has been reduced on average by 50%. Not all clients are charged at a commercial rate for training. Some horses are trained for family members at a discounted rate or in exchange for a share of ownership/prizemoney in the horse (of which few return any funds). You have an interest in the vast majority of horses you train.

You have no loans and live off interest and minimal monies from horse training fees and a few winnings. You have picked up some intermittent casual wages for work as a handyman at the local school to help out financially.

Your harness driving activities been greatly reduced due to your advancing age. You only drive horses that you train.

There is no business plan as you consider the activity to be a hobby.

The equipment used in the activity is two horse floats, harness equipment, stables and a personal vehicle to tow horse floats.

The records you keep are NSW Harness Racing Statements for identifying Drivers Fees earned and a manual tally of training fees for the year and any associated expenses.

You were bought up into the activity by your parents who have since become too old to help with the operation and hence the need to scale down the activity.

You have provided a copy of your Trainer/Drivers Harness Racing Licence.

You spend approximately 20 hours per week on this activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

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

Reasons for decision

Summary

Due to the reduction of your involvement in the activity, the fact that you do not advertise or charge full commercial rates and mainly train horses that you have an interest in with family or friends, it is considered that at this time you are participating in a hobby or recreation.

Detailed reasoning

Consideration needs to be given as to whether your activities constitute a business or hobby. The term 'business' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

Taxation Ruling TR 97/11 discusses the indicators to be considered when determining whether a business is being carried on. These indicators 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 a 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, form of recreation or a sporting activity.

In determining whether an activity is a hobby or recreation, TR 97/11 outlines some indicators to consider:

· it is evident that the taxpayer does not intend to make a profit from the activity;

· losses are incurred because the activity is motivated by personal pleasure and not to make a profit and there is no plan in place to show how a profit can be made;

· the transaction is isolated and there is no repetition or regularity of sales;

· any activity is not carried on in the same manner as a normal ordinary business activity;

· there is no system to allow a profit to be produced in the conduct of the activity;

· the activity is carried on a small scale;

· there is an intention by the taxpayer to carry on a hobby, a recreation or a sport rather than a business.

You consider your harness training/driving activity to be a hobby. There is no business plan and you do not advertise your services. You train horses for family and friends and you have an interest in the majority of these horses. You do not charge commercial rates for training and rely on obtaining part of the income from winnings.

You have reduced your involvement in the activity by reducing the number of horses you train by 50%. Due to your age, you now only drive horses you train.

The overall impression is that you conduct the activity as a hobby. You don't have the intention to carry it on as a business, the scale is small, it is not carried on in a similar manner to other businesses and you are involved in the racing side of the activity by having an interest in the horses.

Therefore the income you derive from this activity is not assessable income under section 6-5 of the ITAA 1997 and the expenses incurred are not allowable deductions under section 8-1 of the ITAA 1997.