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Authorisation Number: 1012033922097

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Ruling

Subject: Are you in business?

Question

Is your activity of selling handmade craft items considered to be a business?

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 are unemployed and receive Newstart Allowance.

You make craft items and sell them at a local market once a month. You sell both new and old items.

You consider the activity of making and selling the items to be a hobby. You pursue the activity for several reasons including continuing a life long interest in craft; as a social outing; as an outlet for your creative and personal talents; and as therapy.

You do not consider your activity to be a business and you do not sell your craft items to make a profit.

You do not advertise, have business cards or sell on the internet or to other outlets. You do not have a business plan or carry out market research nor do you have a separate bank account.

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 craft making and selling activities do not have a commercial character or purpose. You do not sell sufficient quantities for it to be considered a commercial venture and it is unlikely that you would make a material profit by selling at the markets once a month.

You have no intention to engage in business or to make a profit from your activity. You consider your activity to be a hobby and a continuation of a lifelong interest in craft. You do not advertise, sell on the internet, sell to other outlets, carry out market research or have a separate bank account.

We consider your craft making and selling activities 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.