Edited version of private advice

Authorisation Number: 1051854871954

Date of advice: 25 June 2021

Ruling

Subject: Am I in business - event activity

Question

Is the Trustee for x Trust considered to be in business?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Company has a sole director and shareholder (the Director) and is the trustee of the Family Trust ('the Trust').

The entity was established after becoming a licensee for a specific region with an established business in the industry (the Business). The Business was to supply promotional activities, the website and booking system for all future events that the Director would manage.

The activities included group events and tours around Australia.

Assets were purchased and all registrations and insurances were in the name of the Trust.

The intention was to lead and conduct bi-monthly events in the first year and build it up to monthly events in the years following.

The director set about promoting its first event to coincide with a special interstate event in the industry which was to take place.

The business received a partial payment from the Business for the event.

Not many events were held before the Covid-19 pandemic and restrictions resulted in planned events having to be cancelled.

No additional events were undertaken due to Covid-19 restrictions.

No paid events were undertaken in the 20XX-XX income year due to Covid-19 restrictions.

The director carried out activities prior to, during, and after the events.

Almost no hours have been spent on the activity in the 20XX-XX income year due to COVID-19 as it was not possible to plan for or conduct any events due to state border closures and the uncertainty of restrictions being imposed at any time.

As part of the licencing agreement the Business was to receive payments from participants on behalf of the Trust. The business suffered a significant setback during its establishment phase with the relationship with the Business being terminated due to a payment dispute. The setback was compounded once it was discovered that the Business was having financial difficulties. The decision was then made to not conduct any further events with the Business until the outstanding amount was paid and assurance that all future money would be paid on time.

The outstanding amount has not been paid and no assurance has been received about future payments.

This had a severe effect on the original business plan and led to the Trust setting up on its own.

The business has been on hold.

The director had other unrelated full-time employment during these periods.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Subsection 995-1(1) of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

The question of whether you are carrying on a business is a question of fact and degree. There are no rigid rules for determining whether the activity amounts to the carrying on of a business. The facts of each case must be examined. In Martin v FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551, Webb J said:

The test is both subjective and objective; it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and, as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained.

However, the courts have developed a series of indicators that can be applied to your circumstances to determine whether you are carrying on a business.

Taxation Ruling TR 97/11: 'Income tax: am I carrying on a business of primary production?' summarises these indicators. 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.

In many instances, it is obvious that an activity is being carried on as a business and no further investigation is required.

Where it is less obvious, regard must be had for any other potential outcome when determining whether a particular activity should be considered to constitute a business and in determining the tests are to be applied in reaching such a determination.

There are many decided cases that consider the issue where the potential outcome is between 'business or hobby'. A mere intention to start carrying on a business activity is not sufficient.

Applying the relevant cases and indicators to your circumstances

You don't meet the relevant factors contained in Taxation Ruling TR 97/11. While you performed the activities required to run the event, the scale, repetition and regularity of your activities and volume of operations is too small to be considered as carrying on a business.

Summary

Based on the information and documentation provided, and weighing up the relative business indicators and objective factors to your case, it is the Commissioner's view that you were not carrying on a business.