Edited version of your private ruling

Authorisation Number: 1012570252427

Ruling

Subject: Am I in business

Question

Are you in business?

Answer

No.

This ruling applies for the following period(s)

Year ending 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

You are employed on a fulltime basis.

In your spare time you create decorations for special occasions.

Jobs are sporadic, with one coming up every month or so.

You intend to charge an hourly rate for jobs. You would need to pay some expenses out of this including travel to venues.

You expect to make a profit from every job.

You currently obtain jobs by word of mouth and advertising on social networking.

The items used in your designs are either created or purchased by you.

You have no business name or business plan but intend to complete an introduction to small business seminar in the future to help formulate a plan.

You issue quotes and invoices for the jobs you do and have dedicated area in your home to work.

Relevant legislative provisions

Income Tax Assessment Act 1997 - section 6-5.

Reasons for decision

There is no single test used to determine whether activities undertaken amount to the carrying on of a business. The facts of each case must be examined and any determination based on the large or general impression gained (Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548). 

However, the courts have developed a series of indicators that you can apply to your circumstances to determine whether you are carrying on a business. Taxation Rulings TR 97/11 and TR 2005/1 provide the indicators established by the courts that would need to be considered when determining whether a business is being carried on. It should be noted that TR 97/11 and TR 2005/1 specifically deal with carrying on a business of primary production and carrying on a business as a professional artist, respectively, but the indicators established can be equally applied to most other activities. 

The list of indicators discussed in these rulings include, but are not limited to:  

(a)   whether the activity has a significant commercial purpose or character

(b)   whether the taxpayer has more than just an intention to engage in business

(c)   whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity'

(d)   whether there is repetition and regularity of the activity

(e)   whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business

(f)     whether the activity is planned, organised and carried on in a businesslike manner such that it is direct at making a profit

(g)   the size, scale and permanency of the activity and

(h)   whether the activity is better described as a hobby, a form of recreation or a sporting activity. 

The information you have provided indicates that you are not carrying on a business. Although you have an intention and the prospect to make a profit from the jobs you do, your activity is sporadic and not carried on in a similar manner to that of the ordinary trade in that line of business. You do provide quotes and invoices for the jobs you do but you do no formal advertising and have no business name or business plan in place.

While you satisfied some of the abovementioned business indicators, we consider that, overall, the activities you are undertaking do not have the necessary characteristics of a business for taxation purposes.