Edited version of your written advice

Authorisation Number: 1012799776804

Ruling

Subject: Carrying on a business as a professional artist

Question

Are you carrying on a business as a musician in the year ended 30 June 2015?

Answer

No

This ruling applies for the following period

Year ending 30 June 2015

The scheme commences on

1 July 2014

Relevant facts and circumstances

You recently formed a musical group with others and have been booked for one gig.

The members of the group work full-time non-music jobs apart from one member who works part-time.

You have not received any more bookings for the remainder of this financial year, in which you have performed around four gigs previously, for which the group received a small amount of money.

In the year ended 30 June 2014, you earned no money from playing music.

You use an old instrument and incur some minor expenses in relation to your music activity.

You perform your music for the love of it rather than for making money.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Under section 6-5 of the Income Tax Assessment Act 1997, an amount is assessable income if it is income according to ordinary concepts, which is called 'ordinary income'.

Amounts received from transactions carried out in the ordinary course of business, such as the proceeds from the sale of trading stock or providing personal services, are normally considered to be ordinary income.

Taxation Ruling TR 2005/1 Income tax: carrying on business as a professional artist provides guidance on the principles to be applied in determining whether an artist is carrying on business as a professional artist. The following indicators have been considered relevant by the courts:

(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 directed 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 pursuit of a hobby is not the carrying on of a business for taxation purposes. Money derived from the pursuit of a hobby is not regarded as income and is therefore not assessable. Expenses incurred in relation to a hobby are also not allowable deductions.

An activity will generally be considered a hobby where:

• 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 (not to make a profit) and there is no plan in place to show how a profit can be made

• transactions are isolated and there is no repetition or regularity to the activity

• the 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, and

• there is an intention to carry on a hobby or recreational pursuit rather than a business.

The above indicators are considered in combination and as a whole. Whether a business is being carried on depends on the general impression gained from looking at all of the indicators, and whether the indicators provide the activity with a 'commercial flavour'.

In No. 2 Board of Review Case R96 84 ATC 637, the taxpayer was a clerk employed by the public service. During the tax years in question, the taxpayer engaged in the writing of lyrics, the composing of supporting music and the rehearsal and recording of those works with a succession of bands and incurred losses from this activity in each of the years. The Board of Review made a number of findings of fact, including that the taxpayer's activities were undertaken on a continuous and repetitive basis, without interruption throughout the years in question. The taxpayer devoted considerable time and effort to the activities and having regard to his financial circumstances, the capital employed was substantial. The activities were organised in a businesslike manner and the operations involved in the venture were of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made.

The taxpayer spent 10 to 20 hours per week when composing, at least 20 hours per week on those additional occasions when he/she was either rehearsing or performing with musical groups and the taxpayer had the hope of being awarded a contract with either a recording or publishing company. The evidence indicated that there were many compositions developed over the three year period and a selection of those works had been taped and forwarded to a number of recording and publishing companies for assessment. In addition, one of the bands formed to express the taxpayer's style of music rendered X performances during the 19YY year as well as the taxpayer accepting a position with another band for a two week period in the 19ZZ year. The acceptance resulted from the expectation that such participation would extend his range of contacts within the industry.

In your case, the general impression gained is that you are not carrying on a business as a professional artist. This is because your activity appears to not have a significant commercial purpose, has no major investment in time and equipment and has only demonstrated isolated performances rather than repetition and regularity of the activity. Your activity is motivated by personal pleasure and is not carried on for the purpose of making a profit.