Edited version of private advice

Authorisation Number: 1051923197107

Date of advice: 17 November 2021

Ruling

Subject: Am I in business

Question

Are you carrying on a business?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 20XX

Year ended 30 June 20YY

The scheme commenced on

1 July 20WW

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5.

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 995-1.

Relevant facts

You began your activities in the xxxx income year.

The activities were carried out for the purpose of earning income. The assets were not held for long term investments.

Your activities increased in the xxxx income year, not only in terms of the volume of trades but also the value of the activities.

You continued to carry on the trading activity in the xxxx and xxxx income years and intend to continue in future years.

You used personal savings to fund the activity.

You entered into a commercial level of trading in the xxxx income year, with xx transactions entered into during the xxxx income year.

In xxxx income year, buy transactions amounted to $xxxx and sell transactions amounted to $xxxx. The net income from the trading activities in xxxx income year was $xxxx.

The closing trading stock value at 30 June 20xx was $xxxx.

In the xxxx income year, buy transactions amounted to $xxxx and sell transactions amounted to approximately $xxxx.

The closing trading stock at 30 June 20xx was $xxxx.

You made a gain in the xxxx income year.

The activity made a loss in the xxxx income year.

The net loss from the activities in the xxxx income year was $xxxx.

The average buy transaction was $xxxx in the xxxx income year and $xxxx in the xxxx income year.

The average sell transaction was $xxxx in the xxxx income year and $xxxx in the xxxx income year.

Research aids and other strategies are used in your activities.

You don't have a formal written business plan.

You don't have formal qualifications in relation to your activities. However, you have an advisor and you rely on research and analysis as outlined.

You have strategies to help reduce future losses.

Reasons for decision

Carrying on a business

Where a person trades as a business, the associated income is assessable as business income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997). Deductions from carrying on a business are generally deductible under section 8-1 of the ITAA 1997.

However where a person is not in business, the assets will be capital assets and any gains/losses made would be subject to the capital gains tax provisions.

Therefore it is necessary to consider whether your activities are regarded as a business.

Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include 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 particular facts.

Taxation Ruling TR 97/11 outlines some factors that indicate whether or not a business of primary production is being carried on. These factors equally apply to other types of businesses. 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).

The fact that a person may be carrying on a business in a previous financial year, does not mean that the subsequent years a business is also being carried out. We need to look at the activities carried on in the relevant year.

Applying the relevant indicators to your circumstances

Your activity is buying and selling assets. You used personal savings to fund your activity. Your activity made a profit in the xxxx income year and made a $xxxx loss in the xxxx income year.

You carry on your trading activities for the purpose of earning income. You had much buying and selling activity during the months in the xxxx income year when the market was good. You plan to continue to undertake the trading as a commercial activity. Your level of activity shows it is more than a mere intention. The size and scale of the activities undertaken is significant and a large amount of capital was used in your trading activity.

You have used various strategies to help with your activity. Your activities are being carried out in a systematic, organised and business-like manner. Detailed records are maintained.

After a review of all the indicators for carrying on a business, as detailed in TR 97/11, we consider that you were carrying on a business in the xxxx and xxxx income years.