Edited version of your written advice

Authorisation Number: 1012841711208

Date of advice: 16 July 2015

Ruling

Subject: Am I in business - EBay

Question 1:

Are you carrying on a business of selling items on EBay?

Answer 1:

No.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

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

Year ended 30 June 2019

Year ended 30 June 2020

The scheme commences on:

1 January 200X.

Relevant facts and circumstances

You have had an interest in making certain items for over fifteen years.

In 200X you began selling these items on EBay to ensure that you would be able to continue making the items into the future. Your activity using EBay is your hobby undertaken by you for personal pleasure.

You are of aged pension age and your main source of income is your aged pension.

You have no intention to engage in business. You do not have a business plan or operate out of business premises. You have not kept records over the years; however you did receive a letter in June 20XX from both the Australian Taxation Office and Centrelink via EBay (EBay letter) asking that you review your activity.

As a result of the EBay letter you kept records for the year ended 30 June 20XX. You had income for that year of a certain amount and expenses, including all materials, EBay selling fees and postage of greater than the income amount. You incurred an overall net loss.

Your activity has made consistent losses and is carried out on a small scale.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 sub-section 6-5(1)

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Question 1

Summary

You are not carrying on a business of selling items on EBay.

Detailed reasoning

Carrying on a business

Section 995-1 of the 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 tests 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 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

In your case you have a personal interest, a passion for the activity that you carry out. Your activity is undertaken in your own home and has never been carried out for commercial purposes. You have never carried out the activity to make a profit but rather for your personal pleasure.

In 200X you began selling the items on EBay to ensure that you would be able to continue the activity into the future.

The activity has made consistent losses, it is carried out on a small scale, you have no business plan and you have not kept records apart from in the year ended 30 June 20XX.

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 this activity for the years ended 30 June 200X to 30 June 20XX inclusive will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997.

Future years

Your activity has been described as a hobby; however you can change from conducting an activity as 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. For the years ended 30 June 20XX to 30 June 20XX inclusive, provided that your activity continues in a similar way as in previous years, it will continue to be considered a hobby.