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Edited version of your private ruling
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Ruling
Subject: Business vs hobby
Question
Is your venture considered to be a business?
Answer
No
This ruling applies for the following periods
Year ending 30 June 2012
Year ending 30 June 2013
The scheme commenced on
1 July 2011
Relevant facts and circumstances
You undertake an activity.
You have hired a small venue to undertake your activity for 2 nights per month.
You intend to use the venue one night per month to practice your activity, and to hold practice sessions for other participants of the activity on the other night.
You expect between 10 and 20 people to attend these practice sessions.
You also intend to hold social events a few times during the year which may attract more people.
You intend to charge the participants of the social events a small entrance fee to cover the costs of providing food, drinks, cups, plates, cutlery and serviettes.
You also intend to buy items such as tables, cloths, chairs, lights, posters, stereo system, extension cords and power cords and advertise on an internet blog.
The venue may also be used once a year by a visiting tutor to hold workshops. Any fees charged by the tutor would go directly to the tutor.
Your intention is that the venture will be a hobby only. You do not intend to make a profit and any revenue will be used to cover the costs of holding the social events.
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 main reason for hiring the venue is personal, which is to practice your activity.
You do not intend to operate the venture as a business and you have no intention of making a profit. The money you charge participants and entrants will be to cover costs only.
Your venture does not have a commercial character or purpose. It is unlikely you would make a material profit with this venture, given the number of events you intend to hold, the number of participants at each event and the entrance fee to be paid by each participant.
We consider your venture 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.