Edited version of private advice

Authorisation Number: 1051931197131

Date of advice: 31 January 2022

Ruling

Subject: Am I in business?

Question

Does the activity of selling xxx online constitute carrying on a business for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 June 20XX

Relevant facts and circumstances

You are employed full-time.

In 20XX, you started activity A for enjoyment.

You do not have any skills, experience, qualifications and have not undertaken any study towards activity A.

You initially upload content to a community website (MNOP). You were then contacted to be a contributor on another website.

As a contributor, you upload content to an online database.

The database website pays a royalty for each unique download of content for which they receive payment.

You retain ownership of your content, the content is sold by the database website for commercial use.

You signed up to multiple database websites.

The database website facilitate a transaction with the public to use your uploaded content.

The database website takes a commission with the remaining balance paid to you.

You did not enter this arrangement with the purpose of profit.

You do not pay any costs or advertising fees to the database websites.

Activity A generally cost more than what you received from selling the content.

You do not keep general accounting records in relation to the income you receive or the expenses you incurred.

In the 20XX income year, you received approximately $XX,XXX from the use of your content.

You received between $X and $X for the last content sold through the database websites.

Most of the content was created between 20XX to 20XX and uploaded between 20XX-20XX. You last uploaded content in MMM 20XX.

The uploads of the content were in irregular batches, only a few times a year.

The professional equipment used to create content is now considered too old to be used by professionals today.

You edited the content.

You do not belong to a group or club in relation to Activity A.

You have not had any exhibitions.

You do not have a business name or business plan, and do not employ any staff.

You no longer own equipment and no longer practice Activity A.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Carrying on a business

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 case of Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 stated that whether 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 test for determining whether 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 Income Tax: Am I carrying on a business of primary production? And Taxation Ruling TR 2005/1 Income Tax: carrying on a business as a professional artist provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The factors 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.

Section 6-5 of the ITAA 1997 states your assessable income includes income according to ordinary concepts, which is called ordinary income. Amounts that are not ordinary income but are included in your assessable income by under the provisions, are called statutory income. If an amount is not considered ordinary income and is not statutory income, it will not be assessable.

Application to your circumstances

After considering the facts and circumstances of your application, we do not consider that you have the necessary characteristics of a business for taxation purposes for the following reasons:

Significant commercial purpose

There is no evidence of significant commercial purpose as you conduct activity A for enjoyment and then upload to a database website. The database website then facilitates the transaction with the public. You signed up to multiple database websites that pays you a royalty for each unique download of content for which they receive a payment. The database website takes a commission with the remaining balance paid to you. The total costs outweigh the income generated from this activity.

Intention to engage in business

You have no skills, experience, qualifications and have not undertaken any study towards activity A or to improve your skills. You conduct minor editing of the content. You have not had any exhibitions of your content and you do not belong to a group, club, or network in relation to Activity A. You initially uploaded content to a community website MNOP, and then you were contacted by a database website to be a contributor, however you had no intention to commence a business of selling your content.

Purpose of profit

You have a full-time job with no intentions to enter into an arrangement with the purpose of profit. You consider that any amounts received are a bonus and help to cover expenses, which often cost more than what you received from selling the content.

Regularity and repetition

There is little regularity and repetition of your activities. You have uploaded the content a few times a year and this would suggest that this activity is more of a hobby than a business.

Ordinary Trade

You do not pay any costs or advertising fees to the database websites, generally in business, you would have advertising costs and other general expenses.

Businesslike Manner

Your activity A and content uploading activities are not conducted in a businesslike manner. You do not keep records, you do not have a business name, business plan and you employ no staff. You no longer practice activity A. In line with Case P67 82 ATC 317 from TR 2005/1 where a medical practitioner intentionally photographed wildlife, it was identified that the taxpayer's activities in the photographic field went further than the vigorous pursuit of a hobby as the medical practitioner attempted to enter into the photography industry. Unlike that case, you had no intention and did not attempt to enter into activity A's industry.

Taking into consideration the facts and circumstances of your application against the indicators set in TR 97/11 and the case examples from TR 2005/1, you are not considered to be carrying on a business and your activity is merely a hobby. Therefore, any income received would not be assessable income under section 6-5 of the ITAA 1997.