Edited version of your written advice

Authorisation Number: 1051177971159

Date of advice: 9 January 2017

Ruling

Subject: Am I in business

Question 1

Are you in business as a musician?

Answer

No.

This ruling applies for the following period:

The year ending 30 June 2017.

The scheme commences on:

1 July 2016.

Relevant facts and circumstances

You commenced playing a musical instrument approximately 25 years ago, once or twice a year without a routine.

You commenced performing routines free of charge.

You started by entertaining underprivileged groups and later began performing at clubs.

Some years later, you began asking for a small fee to cover your petrol costs.

At this stage, you had 30-35 bookings per year.

You are considering increasing your fee.

You have been told by many venues that you should be charging substantially more per performance.

You keep diary entries and small cards that you dispose of after each gig.

You do not have a business plan, and have not maintained any business records including records of income and expense from your performance activities.

You have no projections in relation to your profit and loss from the activity.

You hold no specific qualifications relating to your activity.

You use a number of instruments and equipment.

You hold a working with children clearance check and police check.

You advertise by word of mouth and by emailing possible venues the relevant information.

You perform once each week for nine months of the year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Tax Administration Act Schedule 1 Section 12-190

Reasons for decision

Question 1

Summary

You are not in business as a musician.

Detailed reasoning

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 question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? provides the Commissioner's view of the indicators that are taken into account when determining when a taxpayer is carrying on a business of primary production. These indicators are not confined to primary production activities but also are applied to all manner of business activities. The factors considered important 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.

In your circumstances, your activity does not have a significant commercial purpose as you mainly entertain disadvantaged groups at no charge, but only ask for a fee from some venues. You do not have an intention to make a profit from the activity but seek payments to help cover your travel expenses. Your activity is not organised or carried on in the same manner as a normal business activity and minimal records are kept. You have no relevant formal training, however; you entertain a range of audiences at a range of venues. Throughout the year you generally perform on a regular basis and book your gigs in advance.

We consider that in your circumstances, your activities are a recreational pursuit or a hobby.

Additional Note

Section 12-190 of Schedule 1 to the Tax Administration Act details the requirements of the No ABN Withholding provisions.

As explained within this section, where an entity (the service provider) provides a service or supply to another entity (the payer), the payer must withhold at the top marginal rate unless the service provider supplies the payer with their Australian Business Number (ABN).

However, this section provides a number of exceptions where this withholding requirement does not apply.

One of the exceptions is where the service provider supplies the payer with a signed statement declaring that they are either involved in the activity as a hobby or recreational pursuit or that their involvement in the activity is purely private in nature.

This declaration can be made on the Statement by a Supplier (NAT 3346) form.

The payer in this circumstance can accept the validity of the statement providing they have no reasonable grounds believe that the statement is false or misleading in a material particular.

Future years

You should note that conducting an activity that has been described as a hobby is a 'status'. 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.