Edited version of your private ruling

Authorisation Number: 1012445609429

Ruling

Subject: Am I in business - eBay - buying and selling goods online

Question:

Are you carrying on a business of selling goods on eBay?

Answer:

No.

This ruling applies for the following periods:

Year ended 30 June 2012.

Year ended 30 June 2013.

The scheme commences on:

1 July 2011.

Relevant facts and circumstances

You have always been a musician and a lover of a particular musical instrument. As a consequence you have collected these kinds of items all of your life. You have a hobby interest of collecting, modifying and playing this kind of item for your own personal pleasure, with no intention of gaining financially from these transactions. You have had this hobby from your youth and continue it in your senior years.

You studied overseas, which included accounting and commercial law. Due to these studies you believed that your hobby activities never generated any taxable income and accrued losses most of the time.

Due to a number of long term illnesses, you started to buy and sell your items of choice using eBay. You bought parts for them, modified them and sold them again. You saw this as a preferred option to occupy your time.

You have followed your hobby extensively, primarily for personal reasons. Profits have never been your concern.

During the year ended 30 June 200X, you received a kind of pension as income support and you were also partially supported by your then spouse.

You are now in receipt of the aged pension and you are separated from your spouse.

The Australian Taxation Office (ATO) conducted an audit of your eBay activity for the year ended 30 June 200X. It was determined that you were carrying on a business of trading on eBay. You were required to submit income tax returns for years ending 30 June 200Y, 30 June 200X and 30 June 200Z.

You engaged an accountant.

Your accountant made submissions to the ATO that you were not required to lodge an income tax return for the year ended 30 June 200Y.

Your accountant lodged a return for the year ended 30 June 200X and returned your eBay activity as a business, returning a small profit.

Your accountant lodged a return for the year ended 30 June 200Z and returned your eBay activity as a business, incurring a non primary production business loss.

Your accountant lodged a return for the year ended 30 June 200V and returned your eBay activity as a business, incurring a non primary production business loss.

You have provided information in regard to your eBay activity for the relevant year, that records a loss for the year.

In regard to your eBay activity for the period 1 July 200V to date, you state that a large amount of your selling activity on eBay is triggered by necessity and not by choice. In 20WW you had to sell items against your better judgement to pay your accountant and for other necessities.

You do not anticipate any change in the way you carry out your eBay activity in future years because it is only a hobby for you. You believe the last few years of losses demonstrate that it is not a profitable activity.

Your motive for your eBay activity is not based on drawing any profits or any income.

You object to having been determined as being in business in relation to your eBay activity and forced to lodge income tax returns at your own expense.

You believe that the ATO in declaring that you are in business is a breach of your civil rights in two ways;

1. your right to conduct and enjoy a hobby is under threat by the ATO; and

2. your right to open or close a business if you desire to do so is under threat by the ATO.

You undertake your eBay activity from your home.

You only buy and sell on eBay through out the year as you feel like it.

You do not have a business plan.

The following documents are to be read with and form part of the scheme for the purpose of this private binding ruling:

· various letters and source documents regarding the eBay activity.

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 6-10,

Income Tax Assessment Act 1997 Section 8-1 and

Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision

Summary

You are not carrying on a business of selling items on eBay.

Detailed reasoning

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 tests 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 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 a personal interest in a kind of item. Your eBay sales and purchases of this item are a hobby or pastime undertaken by you for personal pleasure and therapy during your later years / retirement.

You have no intention to engage in business. You do not have a business plan or operate out of business premises.

For the last few financial years the activity has recorded a loss.

Your main source of income is your aged pension.

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 relevant and subsequent year will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997.

Future years

Although your activity has been described as a hobby, you can change from conducting an activity as a hobby to that of being in business and vice-versa over time, as your level of activity changes. Therefore you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business. You can request a further ruling after the subsequent financial year if you are still unsure about this issue.