Edited version of your private ruling

Authorisation Number: 1012490504611

Ruling

Subject: GST and enterprise

Question

Are you carrying on an enterprise for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of your project?

Answer

No, you are not carrying on an enterprise at this time.

Relevant facts and circumstances

You recently decided to publish a book (book project).

Your intention was to create a debate on the issues raised in your book.

There was no profit making intention.

You hoped to sell as many copies of your book as possible to help defray the cost of writing it.

You have previously published a book (which sold a small number of copies) on a similar subject.

You contacted a number of distributors.

One website advertised your book for sale well below the recommended retail price. The effect of this was that no distributor would be able to make sufficient profit on the book at that retail price to make it worthwhile to sell it.

No books have been sold as yet.

If you do not sell the books, you will distribute them for free to create debate.

You are currently not registered for the GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-20,

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(2)(b),

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(2)(c), and

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision

'Enterprise' has the meaning given by section 9-20 of the GST Act. The definition of 'enterprise' is wide and includes, amongst other things, an activity or series of activities done in the form of a business, or an adventure or concern in the nature of trade or the regular or continuous leasing, licensing or granting of an interest in property.

The phrase 'in the form of a business' is broad and has as its foundation the longstanding concept of a business. The definition clearly includes a business and the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own. Therefore, in your case, even though we have determined that your activity is not carried on as a business for income tax purposes, we still need to consider whether it would fall within the meaning of an enterprise for GST purposes.

Additionally 'carrying on' an enterprise is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise. Activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise. Therefore, it is also relevant to have regard to those activities, in determining whether the activities of an entity amount to an enterprise. If an entity is not carrying on an enterprise (and does not intend to carry on an enterprise) the entity cannot register for GST and therefore cannot make a creditable acquisition and is not entitled to any input tax credits.

Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of the term 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act). The ABN Act uses the definition of these terms that are contained in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Goods and Services Tax Determination GSTD 2006/6 confirms that the principles in MT 2006/1 apply equally to the term 'enterprise' and can be relied upon for GST purposes.

Notwithstanding that the GST Act provides that carrying on an enterprise includes doing anything in the course of the commencement of an enterprise, it is still a question of fact and degree in each case as to whether or not an enterprise is being carried on.

An enterprise can be conducted in a small way. The size or scale of the activities, although important, is not the sole test of whether they amount to an enterprise. The larger the scale of the activities the more likely it is that they are an enterprise. If the activities are carried on in a small way, other indicators become more important in determining whether they amount to an enterprise.

However, there are specific statutory exclusions within the definition of enterprise. Under paragraph 9-20(2)(b) of the GST Act enterprise does not include an activity, or series of activities, done 'as a private recreational pursuit or hobby'. Under paragraph 9-20(2)(c) of the GST Act 'enterprise' does not include an activity, or series of activities, done by an individual without a reasonable expectation of profit or gain.

Activities may be excluded from the definition of enterprise by more than one of the exclusions. Activities may be excluded from the definition of enterprise because they are a private recreational pursuit or hobby. The same activities may also be excluded because there is no reasonable expectation of profit or gain.

Private recreational pursuit or hobby

Whether an activity is a private recreational pursuit or hobby is a question of fact. There are a number of indicators that are relevant to determining whether the activities amount to a private recreational pursuit or hobby. Paragraph 87 of TR 97/11 lists the following indicators:

· it is evident that the taxpayer does not intend to make a profit from the activity;

· losses are incurred because the activity is motivated by personal pleasure and not to make a profit and there is no plan in place to show how a profit can be made;

· the transaction is isolated and there is no repetition or regularity of sales;

· any activity is not carried on in the same manner as a normal, ordinary business activity;

· there is no system to allow a profit to be produced in the conduct of the activity;

· the activity is carried on a small scale;

· there is an intention by the taxpayer to carry on a hobby, a recreation or a sport rather than a business; and

· any produce is sold to friends and relatives and not to the public at large.

Reasonable expectation of profit or gain

The reasonable expectation of profit or gain is not limited to an expectation for the current year or to specific years and may cover a number of periods. Profits or gains are unlikely in the short term for some activities, but expected over the long term. However, the period to be covered by the test must be relevant to the nature of the activity undertaken.

The phrase 'reasonable expectation of profit or gain' is not defined in the GST Act. However, the phrase 'reasonable expectation' has been considered in a number of cases. In News Corporation Ltd v. National Companies and Securities Commission (1984) 57 ALR 550 at 561; (1984) 5 FCR 88 at 101, Woodward J said 'a reasonable expectation of an event requires more than a possibility, risk or chance of the event occurring'.

The test is an objective one. This means that the determination of whether there is a reasonable expectation is not solely based on the subjective view of the individual concerned. It is determined by whether a reasonable person looking at all the circumstances would come to the conclusion that there is a reasonable expectation of profit or gain.

Taking into account all the facts and circumstances in your case, we consider that your activities in respect of the book project can amount to a private recreational pursuit or hobby and may be excluded from the definition of enterprise. Your activities may also be excluded from the definition of enterprise because there is no reasonable expectation of profit or gain. As such, we consider that your activities in respect of the book project do not amount to an enterprise.

Please note however, that a hobby can turn into a business and therefore also an enterprise as the nature and extent of the activities change. This would be reflected in changes to the indicators of private recreational pursuits and hobbies. For example, there may be an increase in the scale of the activities, the introduction of businesslike systems, an intention to make a profit and a move away from a private pastime.