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Ruling

Subject: Am I in business?

Question

Are you carrying on a business for tax purposes?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012
Year ended 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts

You have been collecting items for many years.

You have thousands of items in your collection.

Four years ago you began selling a few items whilst buying other sellers' collections.

In the 2009-10 and 2010-11 financial years you were selling the items generally for less than you paid for them.

You began disposing of the items of your collection to free up space.

You have ceased buying new collections.

You made a decision to try to sell your entire collection excluding your favourites.

You have greatly reduced your prices to get rid of your stock.

You were hoping to have sold them all by the end of the 2010-11 financial year but due to personal circumstances you had to stop selling for prolonged periods.

You have also commenced boxing lots of items to sell at clearance prices.

You will continue to sell the collection off but sales are moving very slowly due to the steady decline of such items being sold Australia wide.

You spend a couple of hours in the morning to pack and post any sold items.

You expect your sales to continue to decline.

You estimate that you have spent a significant amount on your collected items and you are not making any profit.

You are not registered for GST and do not have an ABN for this activity.

You have no business plan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

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

In your case you collected the items because of your personal interest. Your collecting was a hobby or pastime. Your intention to undertake the selling of your items was not for profit making purposes but rather to clear room.

The activity of selling second hand items that you are undertaking has limited commercial character or purpose. You do not have a business plan or operate out of business premises. You do not keep records of your transactions and you sell the items in most instances for less than you originally paid for them. The size and scale of the activity is small and you are only continuing to sell the items 'to get rid of them'.

You intend to spend no more than a few hours a day. It can be expected that a business engaged in the sales would devote many hours to that activity thus forming regular income, business and sales patterns.

While your activities have repetition and regularity, this alone does not lend itself to the existence of a business. You do not expect to make a profit from your sales and your activities lack commercial character or purpose. We consider that, by applying the facts you have provided to the indicators above, your activities do not constitute the carrying on of a business for tax purposes.

As you are not carrying on a business of selling the items, any monetary amounts you receive in relation to this activity are not assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and the expenses related to the activity are not deductible under section 8-1 of the ITAA 1997.