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Edited version of private advice
Authorisation Number: 1012679589603
Ruling
Subject: Am I in business
Question
Are you carrying on a business as an artist?
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
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You have always had an interest in art and have been painting and selling art for a number of years.
Previously you believe you were carrying on a business of selling art (the activity) when volume of art sales were high. However the level of the activity has decreased in the last few years and you do not think you are now carrying on a business.
The amount of time you spend on the activity has also decreased.
You submit a small number of pieces of art to a number of shows and galleries per year.
The number of pieces of art are sold at galleries is quite small, if 100 pieces of art are displayed only approximately 15 may sell. Therefore as you only submit a very small number of pieces of art per show the odds of you selling art are low.
The expenses of your activity are quite high. To submit work at a gallery you incur expenses for framing, an entry fee to the gallery, courier costs to deliver and return the art, and commission to the host where sales are made. You made a small amount of profit in the relevant financial years.
You have no intention to carry on a business, but will continue with the activity on a small scale.
You do not rent a space to conduct the activity, it is done out of a small studio on your property.
You do not have a business plan, however you have kept adequate financial records in relation to the activity.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Ordinary income
Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts.
Carrying on a business
Taxation Ruling TR 97/11 provides the Commissioner's view of the factors used to determine if you are in business for tax purposes.
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.
No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression gained.
Application to your circumstances
Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. Therefore, any income you received in relation to the activity will not be assessable and no deductions are allowed for the associated expenses.
Future years
Although the activity has been described as a hobby, you can change from conducting a hobby to that of being in business (and vice-versa) over time as your level of activity changes. Therefore you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business. You can request a further ruling after the 2018 financial year if you are still unsure about this issue.