Edited version of private ruling

Authorisation Number: 1011737599071

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Ruling

Subject: Am I in business?

Question 1

Are you carrying on a party plan business?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are a senior consultant.

You are involved with a Party Plan.

You began working with the party plan for income and fun.

Your duties include putting out marketing hampers at stores, booking times to visit the homes of clients, sponsoring other people to be consultants and selling products. You also write up receipts, bundle up orders and deliver the products to clients.

All your sales and purchases are written up in your business book.

Your clientele includes friends, family, the general public and also interstate clients.

You are a sponsor for a number of people.

You spend at least 15-20 hours per week on going to demonstrations, training, delivering products and catalogues, sending out letters and advertising for demonstrations.

You conduct 2-3 demonstrations a week.

You attend training every week.

You have no other employment outside the party plan activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

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

Reasons for decision

Summary

We have determined that you are carrying on a business for tax purposes.

Detailed reasoning

Carrying on a business

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

The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts.

Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes.

In the Commissioner's view, the factors that are considered important in determining the question of business activity 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.

Application to your circumstances

We have determined that you are carrying on a business for tax purposes.

You work at least 15-20 hours per week and hold 2-3 demonstrations. You undertake these activities with a view to making a profit. These activities occur on a regular and repetitive basis.

Keeping receipts of all sales, purchases and commissions and recording sales and purchases in a business book is indicative of the activity being carried on in a businesslike and organised manner.

Being a senior consultant, sponsoring a number of people and selling products to interstate clients shows there is sufficient size to the operations. Also, attending conferences and weekly training as well as wanting to build the business up are signs that there is sufficient permanency about the activity.

Having a client base which includes the general public and interstate clients, that there is repetition and regularity and that there is an intention for profit are indicators that the activity is more than a hobby or recreation.

The income you earn from this activity is therefore assessable income.

As you are carrying on a business you are entitled to a deduction for expenses incurred in gaining or producing your assessable income.

Section 8-1 of the ITAA 1997 generally allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.