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Ruling

Subject: Am I in business?

Question

Are you carrying on a business of selling video games on online?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ending 30 June 2012

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You are employed full time.

You have a personal interest in video games.

You keep up to date when new games are released.

You identify collector's editions of video games or games that you believe will be rare or highly sought after and pre-order a number of copies of these games.

You began to sell the copies on online to make extra money.

You do not spend much time researching which games will be profitable; you simply purchase games that in your opinion will be popular.

If there are no games available that you think will be popular you do not buy any.

You use the money you make to purchase more games or for your own personal use.

You do not have a business plan.

You utilise your bedroom for storage and computer use associated with the online sales.

You spend between 10-12 hours per week on these activities.

You have no intention to expand your activities.

You consider your activities to be a hobby.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Summary

You are not carrying on a business of selling video games.

Detailed reasoning

Assessable income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Carrying on a business

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

In Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 it was determined that whether or not an activity amounts to carrying on business for taxation purposes is a question of fact. There is no exhaustive or determinative definition which can be applied to determine this matter.

Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, however, provides that the test for determining whether or not a business is being carried on is both subjective, which considers the individuals purpose at the relevant time, and objective, which considers the nature and extent of the activities undertaken.

Taxation Ruling TR 97/11 provides the Commissioner's 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 business like 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 gained.

Application to your circumstances

In your case you have a personal interest in video games. The sale of video games is considered to be a hobby or pastime. Your intention to undertake the buying and selling of the video games is to make a profit and supplement your income. However, you have only made small profits.

The activity of buying and selling video games that you are undertaking has limited commercial character or purpose. You do not have a business plan or operate out of a business premises. You keep limited records of your transactions.

In addition your main source of income is from your regular occupation and the activity is undertaken in your spare time from your residence.

Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. Therefore, any income you received in relation to this activity for the years ended 30 June 2010, 2011 and 2012 will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you have incurred in relation to this activity will not be deductible.