Edited version of private advice

Authorisation Number: 1052016216027

Date of advice: 14 September 2022

Ruling

Subject: Facebook in-stream ads

Question

Are the payments you receive from your Facebook posts/videos from in-stream advertisements assessable income in accordance with section 6-5 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 August 20XX

Relevant facts and circumstances

You started a Facebook profile page as a mere hobby in August 20XX to provide light entertainment during COVID lockdowns. Your grandchild assisted you with the setup of your Facebook profile.

Your Facebook page was not setup with the intention of being a business or to make an income or profit.

You do not have a business plan or any other business-like things such as selling promotional goods.

Due to a high number of views of your posts/videos on your Facebook profile page, Facebook approached you in December 20XX to use in-stream ads in your posts/videos to start monetizing. You accepted Facebook's offer.

The Facebook "in-stream ads" in your posts/videos started in January 20XX.

Your Facebook page had about XXX "Followers" as of March 20XX.

You have XXX "Followers" on your Facebook profile page as of 22 June 20XX.

You do not have any control over who watches the "in-stream ads" in your posts/videos.

You do not know how much you will be paid for the ads watched in your posts/videos.

You post video on daily basis in your Facebook profile page.

Your posts/videos are generally made in your home. Your grandchild assists you with the filming of the post/video.

Each post/video takes approximately half an hour (to an hour at most) to shoot the video.

Post/Videos editing is only done if you mention something too inappropriate in the video.

You do not have a subscription or paid subscribers.

Your Facebook followers do not pay you for the posts/videos.

You are paid by Facebook based on a number of factors related to the "in-stream ads" appearing in your post/video. You provided brief details about how the payments from Facebook are calculated. You have found the payment calculation method Facebook applies is quite involved. Your grandchild stated she has little knowledge about the payment system and accepts whatever it is that Facebook pays. The videos are posted generally at the same time each day as this is when it suits you rather than when it is likely that you will receive the most views to your posts or other factors to maximise the potential income to receive from your posts.

You receive invoices from Facebook which are quite basic. The invoice just advises the dollar amount to be paid.

You have engaged in some unpaid interviews on television.

You earned approximately $XXX from January 20XX to March 20XX as mentioned in your application when it was lodged in March 20XX.

You earned approximately $XXX in total from February 20XX to May 20XX as of 21 June 20XX.

You have provided information that you have received from Facebook for the period 1 May 20XX to 5 July 20XX. The information provides you statistics on the views, likes, shares and the amount of money you have been paid for each video. You also provided a brief screenshot from a mobile phone showing statistics for each video's views, likes and earnings.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Section 6-5

Taxation RulingTR 97/11

Taxation RulingTR 2005/1

Reasons for decision

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 question of whether a taxpayer is carrying on a business is a question of fact and degree.

Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioner's view of the factors used to determine if a taxpayer is in business for tax purposes. Its principles are not restricted to questions of whether a primary production business is being carried on.

In the Commissioner's view, the factors that are considered important in determining the question of business activity as outlined in TR 97/11 are as follows:

•         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, and

•         the size, scale and permanency of the activity.

No one indicator is decisive. 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.

Application to your situation

To consider if the in-stream advertising payment you receive from Facebook is assessable income, we will need to initially consider if you are carrying on a business.

We have compared your activity carried on via your Facebook posts/videos to 'carrying on a business' indicators during the 20XX-XX income year.

Significant commercial purpose or character

The 'significant commercial purpose or character' indicator is closely linked to the other indicators. In your case, you commenced your Facebook activity as hobby in August 20XX. You were providing light entertainment during the COVID lockdowns. You are using your life experience and personality to create your Facebook content. You are not an expert at creating the Facebook posts/videos. Your grandchild assists you to create your content. You have not undertaken research into the market to determine if your posts/videos would be successful. As stated, you initially commenced it as a hobby to provide entertainment to people who found your posts/videos.

Around December 20XX, because of the number of views your posts/videos were receiving, Facebook offered you to monetize your profile by using in-stream advertising. You accepted Facebook's offer.

Over the next X months the follower base grew significantly. By March 20XX you had reached over XXX followers and by June 20XX you reached XXX followers.

This factor supports that as the 20XX-XX year progressed, your activity was emerging into carrying on a business.

Intention of the taxpayers

The carrying on of a business is not merely a matter of intention alone. Rather, it is a matter of activity motivated by intention. It is appropriate to look objectively at the activity (including when it started) to reach conclusions about a taxpayer's state of mind in deciding to conduct the activity.

Your intention initially to carrying on your Facebook posts was a hobby. You commenced the Facebook posts because of the COVID lockdowns and to provide light entertainment.

In your case, there was an activity being carried on. The extent of the activity did not have characteristics of business and it was not preparatory to carrying on a business.

We consider your initial intention to carry on the activity does not support that a business was being carried on by you.

Purpose and prospect of profit

This factor requires an examination of whether objectively there was a real prospect of making a profit as a result of the taxpayer's participation in the activities.

As mentioned above, we have agreed that your intention in commencing your Facebook posts was as a hobby. You were doing this for your own enjoyment and providing light entertainment to those that viewed your posts. You incur insignificant expenses. You contend that you did not intend to carry on the Facebook activity to make profit.

Around December 20XX, you accepted an offer from Facebook to monetize your profile by using in-stream advertising. As a result of monetizing your Facebook profile, Facebook paid you by the end of May 20XX over $XXX.

Once you accepted the offer from Facebook, it indicates the Facebook activity provided you an opportunity to earn an income. It is an opportunity that you were not expecting to occur. As a result of the Facebook offer, you can make a profit from your activity. Accepting the Facebook offer indicates you changed your intention in carrying on the activity and that you could make a profit. During the 20XX-XX income tax year, your follower base and views of your posts were increasing which would also contribute towards receiving income from the in-stream advertising.

Therefore, it is considered your prospect of profit has changed during the 20XX-XX income tax year and would support the factor that a business was being carried on by you.

Repetition and regularity

The taxpayer's activities should involve repetition and regularity if they are carrying on a business.

You were creating posts/videos for your Facebook page on a daily basis during the 20XX-XX income tax year. You indicate each post takes approximately between 30 minutes to an hour to create. You don't normally edit the post, but only if required.

Therefore, for someone carrying on a similar activity, creating daily posts would be repetitious and regular to your activity. We would consider this factor would support that a business was being carried on.

Organisation in a business-like manner, the keeping of books, records and the use of a system

The activities conducted by, or on behalf of the taxpayer, should be carried out in a systematic and organised manner. This will usually involve matters such as the keeping of appropriate business records by the taxpayer. If the activities are carried out on the taxpayer's behalf by someone else, there should be regular reports provided to the taxpayer on the results of those activities.

In your case, you have not necessarily carried on the activity in a business-like manner. You have created the posts/videos with your grandchild, with very little editing involved.

In terms of records, since you commenced receiving income from the in-stream advertising you have received invoices from Facebook. Income is deposited to your bank account.

Whilst it is accepted that appropriate records are kept by you in relation to your Facebook post activity, it is considered that this factor is neutral in determining whether a business was being carried on by you.

The size and scale of the activity

The size and scale of the taxpayer's activities is not always a determinative indicator. A taxpayer can carry on an activity a small way and be objectively viewed as carrying on a business. The size and scale of the activity indicator would be considered with other indicators.

You commenced your Facebook activity in August 20XX as a hobby. The activity involves you creating posts and making them public on your Facebook profile. It is at the discretion of the public if they find your posts and choose to view your posts and if they view your posts regularly.

The statistics about the number of views and followers to your Facebook posts are indicators of the size and scale of your activity. In March 20XX you had registered over XXX 'followers' and by June 20XX your 'followers' increased to over XXX.

Facebook offered you to monetize your Facebook page in December 20XX because Facebook identified your profile was being viewed by a significant number of viewers.

Based on the significant increase in the number of 'followers' your Facebook profile has experienced and the views to your profile drive your in-stream advertising income, we consider the size and scale of your activity supports that a business is being carried on.

Conclusion

After weighing up the relevant business indicators and objectively considering your contentions and information you have provided, we have formed the view that you are carrying on a business via the posts/videos to your Facebook profile.

We acknowledge that your intention in commencing your Facebook activity you commenced it as a hobby. However, your posts/videos attracted views and followers. Four to five months after commencing your Facebook activity, in December 20XX Facebook offered you the opportunity to monetize your profile by using in-stream advertising because of the number of views to your Facebook posts. During the remainder six months of the 20XX-XX income tax year your follower base and views of your posts increased which resulted in you earning over $XXX in income from Facebook by May 20XX.

Your hobby has changed over the 20XX-XX income tax year resulting in the opportunity for you to earn income and derive a profit given the size and regularity of your activity. The indicators we have objectively applied to your circumstances indicate you are carrying on a business.

Therefore, the payments you receive from your Facebook profile in-stream advertising are assessable income to you in the 20XX-XX income tax year in accordance with section 6-5 ITAA 1997. The income you receive from in-stream advertising is assessable income because it is derived from carrying on a business activity.