Edited version of your private ruling

Authorisation Number: 1012438114008

Ruling

Subject: am I in business

Question

Are you carrying on a business of selling items online?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2006

Relevant facts and circumstances

You have always had a passion for a particular item, and during waking hours you are home and spend most of your time with the items.

You purchased items from garage sales, opportunity shops and other services. Further, friends and family give you their excess items.

Some years ago your ex-partner also introduced you to auction houses which sell the items. At auctions when you find an item you want within a lot of items for auction, you were forced to buy the entire lot even if just you wanted the one item. The lot may consist of between one and 12 boxes of the items. After purchasing you would divide the items into piles for keeping, giving to friends and family, giving to shops and schools for fetes, and ones that you would throw away. The above recipients cannot take any more items from you, and so you have amassed a very large number of the items in storage at your home.

Your ex-partner insisted that you get rid of some of the items. As well as giving away the items, you also started selling some items on an online selling site. However you stopped soon after when the site changed their selling policies.

Your ex-partner suggested you open your own independent online store to sell your excess items.

Your ex-partner created and maintained a website to sell the items, and have sold numerous items since it first opened.

Lately you sell only a small amount from the website.

You will continue to sell items on the website to enable you to afford to purchase more items.

You do not attend auctions anymore, and only get to the second hand stores very occasionally.

You do not keep detailed records of transactions, account books or profit and loss statements for your online selling activity.

You do not sell the items for profit.

You do not think your selling activity is a business, as it is merely an avenue for you to sell excess items.

You do not have a business plan, nor did you operate out of business premises.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Summary

We do not consider that the online selling activity of your collection of items has the necessary characteristics of a business for taxation purposes. Therefore, income derived from this activity is not assessable.

Detailed reasoning

Ordinary income

Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts.

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'.

The case of Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 stated 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 that are considered important in determining if you are in business for tax purposes. The 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 gained.

Application to your circumstances

In your case you have acquired a large collection of items which you no longer want.

The selling of your collection of items has limited commercial character or purpose. You do not have a business plan, nor did you operate out of business premises. You do not keep adequate records of your transactions.

Based on the information you have provided we do not consider that the online selling activity has the necessary characteristics of a business for taxation purposes. Therefore, any income you received in relation to this activity will not be assessable under section 6-5 of the ITAA 1997 as ordinary income.