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Edited version of your private ruling
Authorisation Number: 1012513010934
Ruling
Subject: Interest income
Question
Is the interest income assessable income?
Answer
Yes.
Question
Is the entity carrying on a business?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commenced on
1 July 2012
Relevant facts
Entity A has a bank account.
Interest has been received from a term deposit.
As entity A does not have a tax file number, the bank has withheld tax.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 995-1.
Reasons for decision
Assessable income
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Interest income is ordinary assessable income.
Entity A is an Australian resident for tax purposes.
The Commissioner's view on the assessability of money received by a body corporate is set out in Income Tax Ruling IT 2505 and states that interest is assessable income for a body corporate.
Carrying on a business
Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.
The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the particular facts.
Taxation Ruling TR 97/11 outlines some factors that indicate whether or not a business of primary production is being carried on. These factors equally apply to other types of businesses. No individual factor is determinative, but should be weighed up in conjunction with the other factors.
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.
The activities of entity A do not have a significant commercial purpose and are not considered to be carrying on a business for taxation purposes.