Edited version of private ruling

Authorisation Number: 1011738482988

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Ruling

Subject: Am I in business?

Question 1

Are you carrying on a business of teaching?

Answer

No.

Question 2

Is the income you receive for teaching assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 3

Are you required to have an ABN?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You have a degree in education.

You work in a primary school.

You have started working at another primary school as a tutor.

You intend to take this position for a limited time to help a staff member from the school who is also a friend.

You do not invoice.

Students pay you in cash.

The lessons are short cost $X.

You teach four students and have no intention of taking on more students or expanding the current scale.

You do not undertake any advertising.

You do not run it like a business or use a business plan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5 and

Income Tax Assessment Act 1997 Section 995-1(1).

Reasons for decision

Question 1

Summary

You are not 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

In your case we have determined that you are not undertaking a business for tax purposes.

You receive income from tutoring students, and perform these duties on a regular basis. You make a profit in performing these activities however, it is not considered that you have an intention to engage in business, or to make a profit from performing these services. You do not carry on your activities in a business like manner and you do not have a business plan. You undertake these activities on a small scale and have no intention of increasing the scale of your activity or continuing to hold the position for an extended time. It is considered that you intend to perform these services as a way of helping a friend.

We conclude that you are not running a business for tax purposes.

Question 2

Summary

The money you earn from tutoring is assessable income.

Detailed reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) describes that the assessable income of an Australian resident includes ordinary income, derived directly and indirectly from all sources in or out of Australia.

Ordinary income

Ordinary income has generally been held to include three categories:

· income from rendering personal services

· income from property, and

· income from carrying on a business.

Other characteristics of ordinary income include receipts that:

· are earned

· are expected

· are relied upon, and

· have an element of periodicity, recurrence or regularity.

In your case we determine that the money earned from tutoring is ordinary income as it is income from the rendering of personal services. Therefore the income is assessable.

Question 3

Summary

You are not required to hold an ABN.

Detailed reasoning

An ABN is available to all companies registered under the corporations law; government entities; other entities carrying on an enterprise in Australia; and other entities required to be registered for the GST.

· An enterprise is an activity done:

· in the form of a business;

· in the form of an adventure or concern in the nature of trade;

· on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property;

· by the trustee of a fund, or by an authority or institution, to which deductible gifts are made;

· by a charitable institution or by a trustee of a charitable fund;

· by a religious institution; or

· by the Commonwealth, a state or a territory, or by a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, a state or territory.

Excluded from the meaning of enterprise are:

· activities done as: (i) an employee; or (ii) an individual subject to PAYG withholding for payments to a company director, office holder of under a labour hire arrangement;

· activities done as a private recreational pursuit or hobby;

· activities done by an individual or a partnership without reasonable expectation of a profit or gain; and

· activities done as a member of a local governing body established by or under a law of a state or territory.

Your circumstances

As you are not considered to be carrying on a business, and your activities are considered to be done by an individual without reasonable expectation of a profit or gain, your situation is excluded from the meaning of enterprise and you are therefore not required to have an ABN.