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Ruling

Subject: Are you carrying on a business

Question

Is your activity of marking practice essays considered to be a business?

Answer

No

This ruling applies for the following periods

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You work as a teacher. You also mark exam papers. You earn assessable income from both of these jobs.

You occasionally provide assistance to schools to mark students' practice essays.

You mark the essays because you have an interest in the subject matter of the essays. Marking the papers provides an opportunity for you to pursue your interest. You also consider it a worthwhile activity to have on your resume. You consider the activity to be a hobby.

You got the work by word of mouth, mainly through your contacts at your exam-marking job.

You mark the practice essays when the school asks for them to be marked. There is no particular pattern to the work.

You are paid by the schools. The schools are all in the area of where you live and work.

You drive to each school, collect the papers, take them home to mark them then return them to the school.

You do not keep any business records or record of kilometres travelled.

You intend to cease the activity after 2012.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Carrying on a business

Section 995-1 of the Income Tax Assessment Act 1997 defines 'business' as including any profession, trade, employment, vocation or calling, but does not include 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 particular facts.

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

Your essay marking activity does not have a commercial character or purpose. There is no pattern or regularity to the activity. You mark essays whenever a school needs them to be done.

Even though you have made a profit from marking practice essays, this was not the reason you undertook the activity. You started the activity to pursue your interest in the subject matter of the essays. You consider the activity to be a hobby. The money you make from your essay marking activity is a small percentage of your total income.

You do not keep business records, you do not advertise your services, and you intend to cease the activity after 2012.

We consider your essay marking activity to be a hobby. Therefore, any money earned from the activity is not assessable income and you are not entitled to deduct expenses incurred in earning this income.