Edited version of private advice

Authorisation Number: 1051919765253

Date of advice: 10 November 2021

Ruling

Subject: Assessable income - am I in business?

Question 1

Were the receipts derived from activity A be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as part of carrying on a business for the years ended xxxx to xxxx?

Answer

No.

Question 2

Were any receipts derived from activity B be assessable income under section 6-5 of the ITAA 1997 as part of carrying on a business for the years ended xxxx to xxxx?

Answer

No.

Question 3

Was the gain on the sale of asset C be assessable under the Capital Gains Tax (CGT) provisions in Parts 3-1 to 3-3 of the ITAA 1997 in the xxxx income year?

Answer

Yes.

Question 4

Has the two year amendment period for the years ended xxxx to xxxx now passed pursuant to section 170(1) of Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This ruling applies for the following periods:

Year ended xxxx to Year ended xxxx

The scheme commenced on

1 July xxxx

Relevant facts

Throughout the relevant period, various proceeds from activity A and activity B were received by you.

Over a period minority ownership interests in xx assets were purchased in your name. One asset produced income.

You had a xx% ownership interest in asset C. It was purchased in your name on xxxx for approximately $xxxx. Asset C was sold in xxxx for $xxxx. Your share of the sale proceeds was approximately $xxxx.

Between xxxx and xxxx you banked money from activity B totalling around $xxxx.

Between xxxx and xxxx, an aggregate amount of approximately $xxxx was banked into your personal bank accounts in respect of activity A and Activity B.

You were advised that significant costs associated with owning these assets were incurred during the period of xxxx to xxxx.

You understand that once the costs are taken into account, there was not likely to have been an overall profit from owning the assets.

You had no real control over the purchase and sale of the assets and how the activities were carried out.

You have always had a personal interest in the assets. However, you never viewed your ownership as anything more than a hobby.

Your Notice of Assessment for the year ended 30 June xxxx issued more than two years ago. Other years lodged issued before this.

You were not a partner in a partnership or a beneficiary of a trust at any time during the xxxx to xxxx income years.

You are not an individual in the capacity of a trustee of a trust at any time during the xxxx to xxxx income years.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 102-20.

Income Tax Assessment Act 1997 Section 104-235.

Income Tax Assessment Act 1997 Section 995.

Income Tax Assessment Act 1936 Section 170.

Reasons for decision

Business is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

A primary production business is defined in section 995-1 of the ITAA 1997 to include a business of maintaining animals for the purpose of selling them.

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 particular facts.

Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? outlines some factors that indicate whether or not a business of primary production is being carried on. No individual factor is determinative, but should be weighed up in conjunction with the other factors.

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.

TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' (Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' (Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case, and no one indicator will be decisive (Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922).

Taxation Ruling TR 2008/2 Income tax: various income tax issues relating to the horse industry; including whether racing, training and breeding activities (carried out as stand-alone activities or in combination) amount to the carrying on of a business also provides relevant information.

In your case, you had little involvement in the activities. After weighing up the relative business indicators and objective facts surrounding your case it is considered that you are not carrying on a business for taxation purposes. Therefore any money received in relation to the activities is not regarded as assessable income under section 6-5 of the ITAA 1997.

As the money is not regarded as assessable income, it follows that any expenses incurred in relation to the activities are not an allowable deduction.

Capital gains tax

As outlined in section 102-20 of the ITAA 1997, a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset.

Your asset is a CGT asset.

Under subsection 104-235(1) of the ITAA 1997 CGT event K7 happens when a "balancing adjustment event" (such as a disposal) happens to a "depreciating asset" you held that has been used wholly or partially for a purpose other than a taxable purpose.

Your asset is a depreciating asset.

In your case, you have not used the asset for a taxable purpose, that is, you have not held it for the purpose of producing assessable income.

Where the asset was used wholly for non-taxable purposes, CGT event K7 applies and no balancing adjustment arises under the capital allowance provisions.

On the sale of your interest in asset C, CGT event K7 happened. Your CGT event K7 happened in the xxxx income year. You make a capital gain to the extent that the asset's termination value is more than its cost.

Amendment of assessments

The period during which the Commissioner may amend an assessment for most individuals or small business taxpayers is 2 years. The 2 year amendment period starts on the day after the Commissioner gives notice of the assessment to the taxpayer (subsection 170(1) of the ITAA 1936).

The Commissioner may amend an assessment at any time if in the Commissioner's opinion there has been fraud or evasion (item 5 of the table in subsection 170(1) of the ITAA 1936).

Where items (e) and (f) at Item 1 of the table in subsection 170(1) of the ITAA 1936 do not apply and there is no fraud or evasion, the 2 year amendment period is generally relevant to individuals.

Your Notice of Assessment for the year ended 30 June xxxx issued on xxxx. Therefore the 2 year amendment period has now passed.