Edited version of private advice

Authorisation Number: 1051934068075

Date of advice: 11 February 2022

Ruling

Subject: Carrying on a business of coaching and refereeing

Question 1

Does the activity of coaching and refereeing xxx at AB and CD level constitute carrying on a business for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are the payments received for coaching the school-based teams assessable income under section 6-5 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You have played recreational sport for the past XX years.

For the past X years, you have voluntarily coached and refereed junior sport to share your love for the game and help young people learn important lessons through sport. You have coached at AB and CD level.

You have a working with children's card and a current coaching accreditation.

You do not have a business name nor business plan. You do not have a website and do not advertise anywhere. You have not made any purchases specifically for the purpose of coaching and you are not responsible for booking any facilities.

In Jxxx 20XX, you were employed in a Sporting office on a casual part time basis. Coaching was not part of your contracted duties. You worked in the office XX hours per week on average and received a salary.

Over the 20XX income year, you have held a voluntary coaching position with Sporting Office at CD level and you received an honorarium as is standard for volunteers in these positions.

Sporting Office also asked you to assist them with several other coaching opportunities, where compensation was provided based on an hourly rate.

Your school based coaching roles have been initiated by friends in the sporting community asking if you would be involved in your spare time.

You do not have any formal agreement with the schools, there was no written contract regarding pay or hours. You were required to complete formal processes related to child protection policies at the schools you were working with children.

During Term X at KLMN (KLMN), you coached the year N/O team. The year N/O team played X matches per week and trained for X hours per week.

At QRST (QRST), you coached X teams that played X matches per week and trained X hours per week during Term X and Term X.

Neither KLMN or QRST paid you as an employee, you were not issued with income statements and you did not receive any employee benefits. You did not receive, nor was there a requirement for them to make any superannuation guarantee payments.

QRST paid you at a rate of $X per hour based on your level of coaching accreditation. You did not discuss the rate with KLMN.

Throughout the 20XX income year, you received a total payment of:

•         X hours coaching the school teams at KLMN, QRST, UVWX. You received $X and,

•         X hours coaching for Sporting Office and received $X.

You did not supply any equipment and used the schools sport halls.

You incurred minimal expenses such as travel to and from the venues.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 8-1

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? 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 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.

Class Ruling CR 2004/60 Income Tax: assessable income: referee, umpire and scorer match fees: University of Southern Queensland Student Guild sets out the Commissioner's view on the way in which the tax law(s) apply to sport referees and sets out that although there are match fees paid to referees the compensation is not assessable income under either section 6-5 of the ITAA 1997 or section 6-10 of the ITAA 1997.

The pursuit of a hobby is generally not the carrying on of a business for taxation purposes.

Payments to volunteers/ honorariums

An honorarium is a payment or gesture made as a product or incident of employment or a reward for services that is either tangible or intangible and can be referred to as an ex-gratia payment, bona-fide (or true) honorarium or gift.

True honorariums are not included in assessable income and will not be subject to PAYG withholding or instalments. If the payment is not a true honorarium, it may be classed as assessable income.

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 the size and scale of your activity is small. You have not made any purchases specifically for the purpose of coaching and you are not responsible for booking any facilities. The activity lacks the degree of organisation and system that would be found in the activities of people who would normally be regarded as carrying on a business of sports coach. There is organisation for the season, however there is no full-time commitment or responsibility of the team.

Intention to engage in business

You have a current coaching accreditation and a working with children card which is required as part of the legal requirements when coaching. You have no intentions to engage in business and have volunteered your time for your passion of the sport.

Purpose of profit

In Month 20XX, you started working with Sporting Office on a casual part time basis. Coaching is not part of your contracted duties and you have volunteered your time, experience, and expertise to coach junior volleyball at AB and CD levels. You incurred minimal expenses such as travel to and from the venues. You coach and referee to share your love for the game and to help young people learn important lessons through sport. You did receive financial compensation for your time over the year. In total you spent a total of X hours coaching all teams and received a total of $X for all teams over the 20XX income year. There is no evidence that you negotiated the terms of your honorarium or had a set fee for your duties.

Regularity and repetition

There is regularity of coaching for the season and/or school terms and repetition however this is a common trait in a hobby as well as in business. As a coach you are committed to the team for the season. Therefore, there is no repetition and regularity of activity that would produce a commercial quantity and quality of coaching. You volunteer your time and commit for the period as part of the nature of the sport.

Ordinary Trade

You do not trade and only offer your services to the team that you volunteer for. EFGH asked you to assist them with several coaching opportunities, and you had friends from the sporting community request you to assist coaching with the school teams. You do not have capital invested as a coach or referee.

Businesslike Manner

You do not have a business name or business plan, nor do you employ any staff. You do not have a website and do not advertise anywhere. Your coaching roles have been initiated by friends in the sporting community asking if you would be involved in your spare time. You do not coach or referee in a businesslike manner, it is more that you adhere to your commitment as a coach of the team as per any sport.

Payments to volunteers/ honorariums

In the past, payments to individuals who have performed volunteer work have been included as income. Similarly, you have included money received from coaching activities as part of your assessable income. More recent decisions and guidance tend to suggest that payments for voluntary work will not been considered assessable when the payment is a gesture made as a reward for services. In line with CR 2004/60 the payments received from EFGH are not assessable income and the activity of a coach is best described as a sporting activity.

In line with section 6-5 of the ITAA 1997 and taking into consideration the facts and circumstances of your application against the indicators set in TR 97/11 and the Commissioners view from CR 2004/60, you are not considered to be carrying on a business. Your activity with Sporting Office as a coach is merely a hobby or pastime.

Question 2

You were paid an hourly rate for your time to coach the school based teams, being KLMN, QRST and UVWX. You were not paid as an employee of the school and had an informal agreement with the schools to coach the relevant teams. It has been decided in question 1 above, that you are not carrying on a business and your activity coaching the school based teams at KLMN, QRST and UVWX are merely a hobby or pastime. Similarly, your role as coach for the state representative team with Sporting Office is out of passion for the game. You receive an honorarium as payment or gesture as compensation for services and your time. Honorariums are not included in assessable income and are not subject to PAYG withholding or instalments, therefore you are not required to report either payments received on your income tax return.