Edited version of private advice

Authorisation Number: 1052255432569

Date of advice: 18 October 2024

Ruling

Subject: Commissioner discretion - non-commercial losses

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your XX hire activity in your calculation of taxableincome for the 20YY financial year?

Answer

No.

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

01 July 20XX

Relevant facts and circumstances

Background

You are an individual with a registered ABN.

You do not satisfy the under $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997 for the 20XX income tax year.

You constructed a XX vehicle that was completed on XX November 20XX.

In total you have spent roughly $XXX dollars for the purchase and refurbishment of the XX vehicle which was funded through the sale of investments.

The purpose of the XX vehicle was to operate a XX vehicle hire business.

You started to generate income in January 20XX with a steady growth in activity until the 20XX income tax year.

You have no planned personal use of the XX vehicle and intend to rely on the hire activities as a source of income to sustain life. Since the 20XX financial year the hire activities has been your sole source of income.

Advice sought

You researched the market and believed there was an opportunity in the industry for you to start a business.

You believed this would be a profitable venture based on advice from a solicitor and a business associate who operates a company in the same field.

These associates turn over on a regular basis a minimum of $xxx in annual revenue from hiring out XX vehicles like yours. Your understanding is the XX vehicles costs are around $xxx to $xxx meaning a profit ranging from $xxx to $xxx. You associate has up to a specified number of XX vehicles available for hire at a time.

You had an expectation of revenue of $xxx a year with expense around $xxx-$xxx resulting in a profit of $xxx-$xxx.

XX vehicle hire activities

The hire activities were conducted under a business name of 'Name A'.

The business name 'Name A' was registered under a 'Company A'. The business name 'Name B' (A name similar to Name A) was also registered under the company.

You handle the following in your business:

•                     Arranging bookings with clients.

•                     Organise a XX taxi to take the client to and from the XX vehicle (now handled by a Master 5 Skipper).

•                     Provide a 1 hour induction (now handled by a Master 5 Skipper).

•                     On occasion you travel to the XX vehicle to bring water, food, etc. (The XX vehicle is now anchored so this is no longer a concern).

•                     Draining the spa and cleaning filters (now handled by a Master 5 Skipper).

•                     Restock the spa and fill water tanks with fresh water (now handled by a Master 5 Skipper).

You use the following contractors:

•                     1 Skipper

•                     1 Cleaner

•                     1 Person for maintenance and upkeeping.

You estimate it takes 8 hours total to prepare the XX vehicle for the next client after a hiring is complete so there is one day of no trade.

You utilised the service of a XX vehicle hire service in the 20XX income tax year.

You have future business plans to move the XX vehicles to a new location for renovations after which you will dock the XX vehicle and rent it in a manner similar to Airbnb or you may offer short term rentals while being docked permanently.

You provided a copy of your insurance policy for the period XX December 20XX to XX December 20XX which includes the following details:

•                     Insured name.

•                     XX vehcile name.

•                     Insured amount of $XXX.

You provided a policy renewal notification from the insurance provider with a renewal date of XX December 20XX. The renewal notice contained the same details noted above in the insurance policy for the period XX December 20XX to XX December 20XX.

In response to a request for three rental agreements from the 20XX income tax year you provided occupational briefings, invoices and documents showing specified customer details.

Financial information

On XX April 20XX you provided profit and loss statements for the 20XX to 20XX income tax years. It showed a net loss for all years.

The operating expenses in the profit and loss statements for the 20XX to 20XX income tax years include depreciation amounts which constituted a majority of the expenses.

On XX April 20XX you provided sales transactions lists for the 20XX to 20XX income years. A similar level of income was generated each year and were well below your expected sales.

Covid lockdowns

You state you were affected by COVID lockdowns due to the following:

•                     Borders were closed.

•                     Business restrictions eased but, you were not allowed any out of state customers.

•                     A short 3-day lockdown.

Website fraud

You engaged a social media contractor to help generate clients for the business. To facilitate this they manage a website, social media pages and provide an online payment system using a payment processor known as Stripe. The website went online in the 20XX year. However, you encountered issues with the contractor:

•                     You had funds stolen from your stripe account

•                     You lost access to the website and booking system on XX February 20XX

From July 20XX to December 20XX you paid $XXX to other contractors to attempt to gain access to the website, they were not successful. You than had to establish a new website resulting in you losing your previous google ratings.

You were unable to take online bookings until the 20XX income tax year. Bookings were made manually via word to mouth and companies employed via Airbnb.

You stated you were scammed seven times within the 20XX and 20XX income tax years.

You provided two tax invoice emails from a website provider, to support your contentions regarding the website fraud. The tax invoice was invoiced to 'Name A'. The description of services on the invoice is web hosting, mail hosting, domain name hosting, web maintenance, web support and SEO. The supporting email from the website provider states they were contracted Mr. XX of 'Company A', trading as 'Name A', to transfer a domain and the associated website content to our Australian hosting servers. The email also states the process took approximately 6 months.

You later provided an email from the website provider stating there was an error in their invoicing. The email included a reissued tax invoice to you.

Additional Information

You stated a robbery occurred in June 20XX which resulted in some XX contracts and associated names going missing. You stated a police report was issued and as evidence you provided an email sent from you to your insurance provider regarding two additional missing items for claim number XXXXX, both stored in a box in the storage shed as electrical equipment.

After we questioned you as to why the business name 'Name A' was registered under 'Company A' you stated this was a mistake and stated the following:

•                     The company was a manufacturer of in a specified industry.

•                     It last traded in the 20XX financial year.

•                     There are no bank accounts in the company name.

•                     There is no GST registration in the company name.

•                     The company only has a legacy superannuation liability to the ATO.

•                     The taxpayer's business plan entailed a transition of operations from his sole trader ABN into the company ABN at a future point for asset protection purposes and he mistakenly used the incorrect legal name and ABN for some suppliers.

You provided a notification from ASIC addressed to 'Company A'. Limited advising of a request to transfer the registration of 'Name A' to a new holder. The notification does not state who the new holder is. The notification also states the new holder needs to apply to register the business name within 4 months to securely transfer the registration. No details of any new application have been provided.

Evidence

You provided specified materials and documents in support of your private ruling application.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 35-10(1)

Income Tax Assessment Act 1997 subsection 35-10(2)

Income Tax Assessment Act 1997 subsection 35-10(2E)

Income Tax Assessment Act 1997 paragraph 35-55(1)(a)

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

Summary

Having considered your circumstances and the relevant factors the Commissioner is of the view that the XX vehicle hires activities you conduct do not amount to the carrying on of a business.

The activity is not carried out in a commercially viable manner. Your activities have lacked the expected repetition and regularity. You only operated a single XX requiring minimum personal exertion. The expected income and cost associated means it is not realistic to consider this to be a profitable activity. Further, the activities are not carried on in a business-like manner with there being an inconsistent basis of actions taken in respect of maximising profit and keeping appropriate business records.

The current view of the activity is that it is more akin to leasing an asset instead of the operation of a commercially viable business.

Detailed reasoning

Division 35 prevents losses from a non-commercial business activity carried out by an individual (alone or in partnership) from being offset against other assessable income in the year in which the loss is incurred, unless:

•                     the individual meets the income requirement and the business activity satisfies one of the 4 stipulated tests (paragraph 35-10(1)(a));

•                     an exception in subsection 35-10(4) applies; or

•                     the Commissioner exercises the discretion in subsection 35-55(1) for the business activity for one or more income years.

Division 35applies only to activities that are carried on as a business and does not apply to activities do not constitute a business, for example, the receipt of passive income from investments such as rent from property or lease of an asset.

Relevantly, subsection 35-5(2) provides:

This Division is not intended to apply to activities that do not constitute carrying on a business (for example, the receipt of income from passive investments).

You do not meet the income test under subsection 35-10(2E). You are not carrying on either a primary production business or a professional arts business and as such no exception under subsection 35-10(4) applies.

You have requested the Commissioner exercise the discretion in paragraph 35-55(1)(a) to offset your loss from your XX vehicle hire activity against your other income for the 20YY income tax year.

Passive receipt of income

Paragraph 8 of Taxation Ruling TR 2003/4 Income tax: boat hire arrangements (TR 2003/4) states:

The receipt of income from the lease of an asset does not of itself amount to the carrying on of a business (see FC of T v. McDonald 87 ATC 4541; (1987) 18 ATR 957), but instead would generally be the passive receipt of income from property.

In FC of T v. McDonald 87 ATC 4541, when determining whether the parties were carrying on a business, Beaumont J gave consideration to their minor, if any, active participation in the investment. In his view, there was a mere investment in property and the parties were not carrying on a business.

Further at paragraph 13, TR 2003/4 states:

Whether letting a boat on charter involves only the passive receipt of income or amounts to the carrying on of a *business will depend on the level of services provided in addition to the hire of the boat (see further paragraphs 50 to 57 below). These services may be provided directly by the boat owner, or through the charter operator as the manager of the boat owner's activity. Where the activity involves only the provision of the boat to the hirer, without sufficient services provided, it will not amount to more than the passive receipt of income.

At paragraph 15 of TR 2003/4 the determination of "whether a taxpayer's boat hire activities amount to the carrying on of a business also involves considering the general indicators of when a business exists".

Whether a business activity has started to be carried on for the purposes of the Commissioner's discretion in section 35-55

For the Commissioners discretion in paragraph 35-55(1)(c) to apply it must first be established that the business activity has started to be carried on.

Section 995-1 defines a 'business' to include any profession, trade, employment, vocation or calling but does not include occupation as an employee. Although the term 'business' is defined, the ITAA 1997 does not contain a specific definition of when a business activity is being carried on, or what a business activity is.

Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses (TR 2001/14 at paragraph 10 states "Division 35 applies only to an individual who is carrying on a '*business activity' in an income year, either on their own, or in a general law partnership (section 35-5). Division 35 does not apply to any other entity".

Further at paragraph 35 of TR 2001/14 "Division 35 is not intended to apply to activities that do not constitute a *business, e.g., a 'passive investment".

At paragraph 37 TR 2001/14 states:

The composite term 'business activity' is otherwise undefined in the ITAA 1997. The inclusion of the extended definition of 'business' in the composite term does not, however, alter the ordinary meaning of the composite term in any significant way. That ordinary meaning is an activity forming part or all of the taxpayer's activities 'engaged in for the purpose of profit on a continuous and repetitive basis' (Hope v. The Council of the City of Bathurst 80 ATC 4386 at 4382; (1980) 12 ATR 231 at 236), or an activity that is one of the activities that makes up the 'course of conduct' (FC of T v. Murry 98 ATC 4585 at 4596; (1998) 39 ATR 129 at 145) that is the taxpayer's business.

For the purpose of determining whether an activity is the carrying on of a business the facts of each case must be examined having regard to relevant indicators that have been established through case law. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production (TR 97/11) lists these general indicators of carrying on a business and although the ruling is in respect of primary production the general indicators can be applied to any industry. These general indicators 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 repetition and regularity of the activity

•                     whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade

•                     whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit

•                     the size or scale or permanency of the activity

•                     whether the activity is better described as a hobby, a form of recreation or a sporting activity.

Of these indicators, paragraph 16 of TR 97/11 says when considering whether a person is carrying on a business, all of the indicators must be weighed up. However, in doing so, equal weighting may not be given to each indicator. Whether a business is carried on depends on the general impression gained and whether it has a commercial flavour or character. In most cases, the greatest weighting is given to the repetition and regularity of the activities followed by organisation in a business-like manner as a supportive indicator.

Taxation Ruling TR 2003/4 Income tax: boat hire arrangements (TR 2003/4) provides further guidelines as to how a boat hire business would be expected to operate. Paragraph 8 TR 2003/4 states concerning the operating of a business:

For deductions in respect of a boat used in a charter activity to not be subject to section 26-47 of the Income Tax Assessment Act 1997, the boat charter activity must amount to the carrying on of a business. The receipt of income from the lease of an asset does not of itself amount to the carrying on of a business (see FC of T v. McDonald 87 ATC 4541; (1987) 18 ATR 957), but instead would generally be the passive receipt of income from property.

The taxation ruling further discusses how to differentiate between letting of a boat and the carrying on of a business to identify if the income is generated from the leasing of an asset as opposed to conducting a business activity that provides sufficient services to meet those criteria.

Based on the factors of your situation, we have considered the following indicators:

Whether the activity has a significant commercial purpose or character

This indicator generally covers aspects of all the other indicators and broadly requires that a taxpayer be able to show that the activity is carried on for commercial reasons and in a commercially viable manner. The taxpayer needs to be able to show that the interaction between the size and scale of the activity, the repetition and regularity and the intention and prospect of profit are sufficient to conclude that the activity has a significant commercial purpose.

As per paragraph 16 of TR 2003/4:

A business is generally carried out on such a scale and in such a way as to show it is being operated on a commercial basis and in a commercially viable manner and, with an intention of producing a significant commercial gain.

You have displayed the following characteristics:

•                     You have been unable to generate a profit.

•                     You generate income not from your own efforts but, from the use of the asset and not additional services you provide. This is considered to be passive income as it takes negligible effort to acquire the income resulting from the hire. The payments received for the use of the XX vehicle is more akin to passive income from the leasing of an asset rather than from the carrying on of a XX vehicle hire business.

•                     You operate at a small size.

•                     You have not shown repetition or regularity.

•                     You have not behaved in a business-like matter.

As noted, this indicator generally is reflective of the other indicators as a whole. The other indicators will be discussed below.

Whether the taxpayer has more than an intention to engage in business

Relevantly, this indicator is particularly related to whether the activity is preparatory or preliminary to the ultimate activity; and whether there is an intention to make a profit.

You have displayed more than an intent to carry on an activity.

As stated earlier, the carrying on of a business is not a matter merely of intention. It is a matter of activity.

You invested large capital amounts in 20XX to facilitate the operation of a XX vehicle hire activities. This is further supported by you undertaking the activity of hiring the XX vehicle out. However, whether you actually commenced business operations is a question of fact and degree.

Whether there is repetition and regularity of the activity

A XX vehicle hire activity is more likely to amount to the carrying on of a business where it displays repetition and regularity in its conduct.

The sales transaction lists provided by you show XX separate XX vehicles hire for the 20xx income tax year. This level of activity is not what we would expect from a business. Furthermore, when you do make a sale, the personal exertion required from you is a 1 hour orientation, occasional deliveries to the XX vehicle and an 8 hour maintenance turnaround between hires which is only in part handled by you.

When considering the 20XX, 20XX, 20XX and 20XX income tax years the level of activity on display has been constantly small with little difference to the 20XX income tax year. The level of activity in the 20XX income tax year is therefor considered in line with the other income tax years.

Though we acknowledge the website fraud may have had an effect on the business, it does not excuse of lack of business activity, nor is it considered cause for an exemption from the condition. In addition, you stated you lost access to the website on XX February 20XX. However, all the charters listed in the sales transactions for the 20XX income tax year are dated after this. So, it is not clear what impact the fraud had.

Based on the level of activity the XX vehicle hire activities are more consistent with the passive receipt of income from letting the XX vehicle as opposed to carrying on a business.

The size, scale, and permanency of the activity

As per paragraph 90 of TR 2003/4 this indicator examines whether the taxpayer's activities are of a sufficient scale to be commercially viable.

Generally, the larger the scale upon which the XX vehicle owner conducts the XX vehicle hire activity the more likely it is that it will amount to the carrying on of a business. However, this indicator is not determinative.

In particular two different types of activity are relevant, the acquisition of the minimum level of business assets and the commencement of business operations. Both are necessary to be able to conclude that a business has commenced.

You have displayed a degree of size and scale, but only in terms of costs of assets. A single asset for hire is not what would be expected for a business of hiring assets. In such a case the level of activity undertaken by the asset holder would be minimal unless further additional services outside what would be expected of any normal rental were provided.

At paragraph 92 of TR 2003/4 it is noted "where the scale of the activity is small other indicators take on greater weight when deciding whether a *business is being carried on by the taxpayer". In Thomas v FC of T 72 ATC 4094 (1972) 3 ATR 165 (Thomas) the court was influenced by the fact that even though the activity was small, the scale of the activity was sufficient to provide the taxpayer with an expectation of a financial return which would be of a significant amount, with a relatively small outlay of time and money, and that this return would continue for a very long time.

In contrast your stated outlay is significant yet the return is small and there has been no profit recorded in any of the income tax years between 20XX and 20XX. The return generated each year is also does not align with your stated intentions when starting the business, i.e. revenue of $xxx of income per year.

Whilst you have stated you have deployed significant capital amounts your size and level of activity are small along with a small level of returns.

Whether the business is of the same kind that is being carried on in a similar manner to that of the ordinary trade in that line of business

Activities are more likely to be carrying on a business where they are carried on in a similar manner to other businesses in the industry.

Behaviour that would indicate that a business of XX vehicle hire is being carried on includes:

•                     The renting to the public resulting in income being generated as a result of your efforts or though the services of a charter operator,

•                     Providing additional services outside what would be expected of a purely rental agreement,

•                     Substantial levels of repetition and regularity of a hire being rented out though the effort of the business,

•                     Having several XX vehicles available for hire creating a large volume of work to be undertaken.

•                     The XX vehicle is available for hire on an arm's length basis,

•                     The operator has appropriate insurance.

Your operation does not yet meet a number of these factors. In your case:

•                     You generate income not though your efforts but, from the hiring of a single XX vehicle,

•                     You provide no additional services outside what would be expected of a purely rental agreement,

•                     You are yet to achieve a substantial level of repetition and regularity after years of operating, and

•                     You have a single XX vehicle resulting in minimum work activities to be undertaken.

Although you do have insurance it is questionable whether this is appropriate for a business. You stated the XX vehicle cost $XXX amount yet your insurance indicates this XX vehicle is only insured for a significantly lesser amount. In most cases a business would generally be expected to insure its main operating asset for an amount enough to cover the cost of replacing the asset. In this instance that does not appear to be the case.

The above factors indicate that it is unlikely that your activities are of the same kind and carried on in a similar manner to another commercial business. This suggests a lesser likelihood that a business is being carried on.

Purpose and prospect of profit

The prospect of profit from an activity is considered to be a very important indicator of carrying on of a business. It is important to show how the activity can make a profit. TR 2001/3 states it should be considered in the legal and general sense. We must take into consideration the income expected and the cost associated with the activity to see if there is a realistic profit to be generated to satisfy the criteria.

Considering the capital invested in the business it would be expected that you kept detailed records as the business would need to generate more than $XXX just to cover the purchase and renovations of the XX vehicle.

Your initial expectations were for income of around $xxx per year and a profit of $xxx to $xxx per year. If this were achieved it would take between a significant number of years to break even on the initial outlay, this is not including the fact you are planning to sustain your life though this business.

At paragraph 78 of TR 2003/4:

to establish whether a boat owner has a bona fide intention to make a profit from entering into a boat hire activity, it is necessary to take into account all of the expected income and expenses. This will necessarily include any interest incurred and the decline in value of the boat while used in the boat hire activity. For example, in Thomas interest was clearly considered to be part of the relevant expenses considered. Further, in Daff v. FC of T 98 ATC 2129; (1998) 39 ATR 1042 and Case H11 (supra), the major items of expenditure were noted to include interest and depreciation. In no case is it evident that the courts or the Boards of Review have deliberately removed allowances for interest or depreciation when considering if the taxpayer had an intention to profit from an activity.

Between the 20XX and 20XX income tax years you did not report a profit. Even if we exclude depreciation, you have still suffered significant losses totalling in excess of $XXX for those income tax years. During these income tax years your expected income has also fallen significantly short of your initial projections.

Paragraphs 82 and 83 of TR 2003/4 note:

82. Similarly, boat owners entering into a boat hire activity may make losses in the initial years but must be able to demonstrate that they intend to make a significant commercial profit from the boat hire activity. That is, that they genuinely believe that total income will significantly exceed the total expenses over the anticipated life of the activity. The expenses will necessarily include any interest on borrowings and the decline in the value of the boat or boats used in the activity.

83. The tax savings made by offsetting the losses from the charter activity against other income are not part of the profits from the boat hire activity, as there is no indication in any of the cases that the term 'profit' is used in any after tax sense.

As above, you have not reported a profit in the first X years of operations. Additionally, the revenue you have reported is significantly less than the level of revenue required to make a profit or in fact meet your stated revenue expectations prior to commencing any activities. As already noted the level of revenue falls significantly short of what would be expected for commercial activities if $XXX of capital was invested.

The above factions make it difficult to see how the business intends to be profitable in the future and exceed the initial start-up cost of the enterprise while also sustaining your life. The overall cost of the XX vehicle will likely exceed any income it is able to generate. Therefore, it is not credible to conclude that that the undertaking will result in a profit based on your activities as reported.

Whether the activity is planned, organised, and carried out in a businesslike manner such that it is directed at making a profit

A business plan normally involves setting profits targets, establishing a budget, maintaining operations on a consistent basis, retaining, and pursuing profitable activities, discontinuing unprofitable activities and keeping appropriate business records.

Setting profits targets - As stated earlier you expect profits of $xxx - $xxx a year. You have yet to hit this target nor do your projections show you reaching this value. In fact, your reported revenue falls significantly short of these projections. You based your expectations on the revenue generated by you associates business. It is clear your activities fall well short and do not support the contention a business is being carried on.

Maintaining operations on a consistent basis - You stated the loss of your website in the 20XX income tax year prevented you from taking bookings online until the 20XX income tax year. As this is a key aspect of your business it would be expected that you would resolve this in a timely matter. The invoice provided as evidence of the website fraud was 3 years after the stated loss of the website. If the website was critical for your activities, it is expected a period of 3 years would not elapse before action is taken or alternative measures introduced. In any case the level of activity in subsequent years was relatively consistent with the years beforehand. Either the website was not critical for the activities or the activities were not undertaken in a business-like manner.

Though you stated you had been scammed 7 times in 2 income years one would expect additional precautions be added to your business plan to mitigate this in the future.

Keeping appropriate business records - Your records do not show a level a sophistication that would be expected. You do not appear to maintain conventional accounting records, instead relying on invoices, and crypto and cash transfer records from your holding accounts. The records of XX vehicle bookings are partly incomplete and seem conflicting with statements made concerning dates. The documents provided in response to a request for rental agreements are incomplete and missing valuable information.

Further, the information provided in your ruling application contains multiple discrepancies and inconsistencies and omissions. There are discrepancies and inconsistencies between the profit and loss statements, sales transactions, the excel spreadsheet you provided and updated figures also provided by you.

The record keeping is not of a level expected of a business being carried on and it is hard to see how you can monitor the profitability of the activities with incomplete and inconsistent record keeping. Such disregard is more akin to the oversight of the passive receipt of income as opposed to the operation to a commercially viable business.

Pursuing profitable activities - In the 20XX income tax year you stated that you would have generated a significant amount of additional income if not for the website fraud. The amount you contended is significantly higher than any other income tax year in which you have conducted your activities, and in fact significantly higher than your future income projections. Your contentions are not sufficiently supported by the documents you provided.

Even if this were to be true your contended profit was only around $XXX. Further, it would seem you have then changed your operations back to unprofitable activities based on the level of rental activities provided by you. This is not the conduct that would be expected of a business. As stated in paragraph 88 of TR 2003/4, one of the factors indicative of a business being carried on is that profitable activities are pursued and unprofitable activities are discontinued. Based on your contentions your actions would be appear to be the opposite. You have discontinued profitable, albeit very small, activities and continued unprofitable activities. In any case, as noted above the evidence provided does not support your contentions.

Whether the activity would be better described as a hobby, recreational or sporting activity

You have stated that you have not used the XX vehicle in any private capacity.

Conclusion

After weighing up the indicators of carrying on a business outlined in TR 97/11, TR 2003/4 and objective facts surrounding your case, it is considered that you were not carrying on a business in the 20XX income tax year.

As discussed earlier, the XX vehicle hire revenue is considered to be the receipt of passive income from the letting of a XX vehicle and is not considered to be from a business activity based on the discussed indicators of a business being carried on.

During the relevant period, your activities:

•                     were not of a substantial scale,

•                     you had no regularity and repetition,

•                     record keeping was inconsistent and incomplete,

•                     you were not profitable, and

•                     your revenue is considered to be the passive receipt of income from the letting of a XX vehicle and not from your own efforts.

Division 35 of the ITAA 1997 is not intended to apply to activities that do not constitute carrying on a business. As your activities did not amount to carry on a business in the 20YY income tax year, the Commissioner would not be in a position to exercise his discretion under paragraph 35-55(1)(c) of the ITAA 1997 to allow you to include any losses from your XX Vehicle Hire activity against your other income in the calculation of your taxable income for the relevant income year.