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Edited version of your private ruling
Authorisation Number: 1012477156026
Ruling
Subject: Carrying on a business
Question
Are you carrying on a business?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You conducted a business as a sole trader.
Your activities have generated little income in recent years.
You have made net losses from your activities in the previous three years.
You will continue the activity because you enjoy it.
Your activities will further reduce due to personal health issues and carer needs of your spouse.
You will not advertise or promote related products or services.
You intend to sell some products to cover some of the related expenses.
You do not aim to make a profit from your activities.
You do not intend to engage in business-like activities and do not wish to pursue a business.
Relevant legislative provisions
Income Tax Assessment Act section 995-1.
Reasons for decision
Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' to include 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'. However, this definition simply states what activities may be included in a business; it does not provide any guidance for determining whether the nature, extent, and manner of undertaking those activities amount to the carrying on of a business.
Taxation Ruling TR 97/11 considers the necessary indicators to determine whether a person is carrying on a business of primary production. While the examples used in the ruling relate to primary production activities, the principles are of general application to other activities. Similarly, Taxation Ruling TR 2005/1 considers the necessary indicators to determine whether a person is carrying on a business as a professional artist. The indicators in both rulings are essentially the same
Paragraph 13 of TR 97/11 and paragraph 10 of TR 2005/1 list the following indicators as relevant when considering whether a business is being carried on:
a) whether your activity has a significant commercial purpose or character,
b) whether you have more than just an intention to engage in business,
c) whether you have a purpose of profit as well as a prospect of profit,
d) whether there is repetition and regularity to your activity,
e) whether your activity is of the same kind and carried on in a similar manner to businesses in your industry,
f) whether your activity is planned, organised, and carried on in a business-like manner,
g) the size, scale and permanency of your activity,
h) whether your activity is better described as a hobby, or recreation.
No one indicator is decisive, and all indicators should be considered in combination and as a whole.
Paragraph 17 of TR 97/11 goes on to state that, subject to all the circumstances of a case, where an overall profit motive appears absent and the activity does not look like it will ever produce a profit, it is unlikely that the activity will amount to a business.
The information you have provided indicates that you are not carrying on a business. You are not undertaking your activities in a manner similar to that of those in similar businesses and you have stated that you do not intend to advertise or promote your activities or services. The size, scale and permanency of the activity is small and the money you receive from the sale of your products does not cover costs resulting in yearly losses. In fact, your activities have rarely produced a profit. You have indicated that you do not intend to make a profit, stating that you only intend to sell a few items to cover some of the costs of your activity to enable you to continue these activities as a hobby.
We consider no profit motive exists and there is no reasonable prospect of profit. You have indicated that you do not intend to engage in business activities as you have no intention of pursuing a business. You believe you are carrying out your activities as a hobby. You have also stated that it is likely that the scale of your activities will further reduce due to your spouse's care needs and your personal health issues. We consider that the activities you are undertaking do not have the necessary characteristics of a business for taxation purposes.