Edited version of your private ruling

Authorisation Number: 1012576961038

Ruling

Subject: carrying on a business

Question 1

Is X carrying on a business?

Answer

No.

Question 2

Is X entitled to a deduction for the costs incurred to purchase items for the business?

Answer

No.

Question 3

Can the company offset a loss generated by X's activities against other income generated by the company?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on

1 July 2013

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling,

· further information received, and

· the business plan.

X trades through a company to provide a professional image.

The company earns income from another business activity.

X will provide evaluations of items. X will have a website, logo, and business cards.

X intends to invest $Y into building the brand.

X will purchase items which will be evaluated by an employee.

X does not advertise to source items, instead they are identified through various active and passive means.

Items are selected based on whether or not it is considered that people might be interested in them.

Once X has built a reputation it is hoped that vendors will provide items free of charge.

Currently the activity has not generated any revenue from advertising.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Question 1

Section 995-1 of the Income Tax Assessment Act 1997 (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 test 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 that are considered important in determining if you are in business for tax purposes. The factors 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.

Conclusion

X will provide evaluations of items and will have a website, logo, and business cards. X intends to invest $Y into building the brand. X will purchase items which will be evaluated by an employee.

X does not advertise to source items, instead they are identified through various active and passive means. Items are selected based on whether or not it is considered that people might be interested in them.

Based on the information provided, we do not consider that the activity has the necessary characteristics of a business for taxation purposes. The activities will be conducted on an insufficient scale to be considered a business. Further, the activity does not have a significant commercial purpose; instead it has the nature of a recreational pursuit.

Question 2

As the activity does not constitute a business, X is not entitled to a deduction for the costs incurred to purchase items.

Question 3

As the activity does not constitute a business, any loss made by X cannot be offset against income earned from the company's other business activity.