BTC3150 Lecture 3: Week 3
Week$3a:$Income$from$business$
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Receipts$from$business$activity$
Characteristics!of!receipts!as!ordinary!income!from!a!business!activity!involves!a!
Two!step!process:!
a) Determining!whether!the!taxpayer!is$carrying(on(a(business$
b) Consideration!of!whether!the$receipts(are(the(normal(proceeds(of(that(business(
activity(
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a) Determining$whether$the$taxpayer$is$carrying$on$a$business$
• Hobby!vs!Business$
• Business!(s!995-1):$
- includes!any!profession,!trade,!employment,!vocation!or!calling,!but!does!not!
include!occupation!as!an!employee!!
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!!!!!!!!!!!!!!Indicators$of$a$business$activity$by$courts:$
o Profit-making!intent:!
- Not!necessary!to!show!actual!profit!to!show!intent!
- Lack!of!profit-making!intention!doesn’t!necessarily!preclude!there!being!a!
business:!
- !CL:!Stone(v(FCT((2005):!Policewoman!javelin!thrower.!Had!skills!and!talent,!
generating!income!from!being!a!javelin!thrower-!constituted!to!carrying!on!a!
business!in!relation!to!her!sporting!act,!therefore!income!from!competitions!
are!ord!income!under!s6-5$ITAA97.!
o Scale!of!activities,!including!the!nature!and!type!of!capital!and!level!of!turnover:!
- Small!operation!can!still!constitute!a!business!if!there!are!sufficient!other!
characteristics:!!
- CL:!FCT(v(JR(Walker((1985).!Working!on!land,goats!–!profit!intention.!
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Carrying!on!business!
$$$$$$$$$$$$S6-5$
Non-business!activities!
(hobbies)!
Not!assessable!income,!unless:!
i) Another!general!concept!of!
ordinary!income!applied!
(extraordinary!transactions)!or!
ii) Specifically!made!assessable!by!
legislation!(statutory!income)!
Constitutes!ordinary!
income!
o Commercial!approach!is!taken:professional!advice!during!operations,!if!market!for!
produce!has!been!explored,needed!for!domestic!purposes!
!CL:!Thomas(v(FCT((1972):!
o System!and!organisation!employed:!
- Degree!of!planning!and!amount!of!time!invested!
- Taxpayer!may!delegate!these!duties!and!still!be!considered!a!business:!
- CL:!Ferguson(v(FCT((1979)!!-!retired!navy!whom!raised!cattle.!!
o !Methods!characteristic!of!the!particular!line!of!business!
- Dairy!farmer!use!planned!breeding!programs!
o Sustained!and!frequent!activity!
– Output!much!greater!than!what!needed!for!domestic!purposes:!!
– CL:!Thomas(v(FCT((1972)!–!did!not!make!profit,!made!losses!but!still!a!business!
although!main!income!was!from!being!a!barrister.Tree!planting!was!uch!greater!
than!needed!domestic!purposes-!more!than!just!a!hobby.!
o The!type!of!activity!and!the!type!of!taxpayer.!
!
Hobby$vs$Business$
1) Gambling!
o Professional!bookmakers!and!casino!operators!carry!on!a!gambling!business!(scale,!
commerciality,!profit-intention).!
o Individuals!who!gamble!are!very!unlikely!to!be!considered!a!business,!unless!a!
significant!degree!of!indicators!exist,!for!example:!
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$$$$$$$$$$$$$Gambling$business!
Not$a$business!
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•Trautwein*v*FCT*(1936):!horse!
racing!with!view!to!profit;!farm!to!
breed!horses;!racing!own!horses!
and!those!leased;!frequent!and!
systematic!betting;!wagering!
large!amount!of!money;!use!of!
agent!to!bet;!attended!race!
meetings.!
•Evans*v*FCT*(1989):!horse!
betting!over!five!year!period;!
“lucky!gambler”’;!bets!not!
placed!with!a!bookmaker;!
wagered!on!long-odds!bets.!
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2) Sportspeople!
o Determine!whether!the!receipts!derived!by!a!professional!sportsperson!is!from!a!
business!or!personal!services:!
- An!employee!has!limited!deductions!compared!to!a!business.!
o Courts!have!tended!to!more!likely!label!professional!sportspeople!as!being!in!
business:!
- Olympian!(also!a!full-time!police!officer)!derived!among!other!things:!prize!
money,!sponsorship!and!appearance!fees.!No!clear!profit!motive:!Stone(v(FCT(
(2005).!
- Playing!football!full-time,!sports!managers!(representatives),!ancillary!
activities!such!as!endorsements!and!media!arrangements:!Spriggs(v(FCT;(
Riddell(v(FCT((2009).!
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3) Investment!activities!
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A!business!of!investment!can!exist!where!there!is!sufficient!indicators!of!a!business:!
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Taxation!consequences:!
–If!a!business,!the!investment!(eg!shares)!will!be!treated!as!trading!stock!and!hence!on!
revenue!account.!
–If!not!a!business:!the!investment!is!on!capital!account.!
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4) Land!sales!
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Note:!notwithstanding!a!prima(facie!capital!characterisation,!activities!of!land!development!
could!constitute!an!extraordinary!or!isolated!transaction.!
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5) Sharing!economy!–!other!people!helping!each!other!
!!!!!!! !
•Difficult!to!argue!that!the!provider’s!actions!are!in!pursuit!of!a!recreational!activity,!for!
example:!Eg!UBER!
–Pricing!indicates!intention!to!profit!
–Operation!may!be!small!but!business-like!approach!
–Level!of!detail,!professionalism!and!organisation.!
Investment!business!
Not!a!business!
•London*Australia*Investment*Co*Ltd*vFCT:*
High!degree!of!investing!and!re-investing!in!
shares!to!maintain!a!high!degree!of!
dividend!yield.!
•AGC*(Investments)*Ltd*v*FCT*(1992):!!
Invests!for!the!long!term-growth,!rather!
than!speculative!investment.!
Capital:!selling!
land!one-off!
!
Income:!Property!
developers!
Document Summary
Another general concept of ordinary income applied (extraordinary transactions) or. Characteristics of receipts as ordinary income from a business activity involves a. Indicators of a business activity by courts: profit-making intent: Not necessary to show actual profit to show intent. Lack of profit-making intention doesn"t necessarily preclude there being a business: Cl: stone v fct (2005): policewoman javelin thrower. Small operation can still constitute a business if there are sufficient other characteristics: Working on land,goats profit intention: commercial approach is taken:professional advice during operations, if market for produce has been explored,needed for domestic purposes. Cl: thomas v fct (1972): system and organisation employed: Degree of planning and amount of time invested. Taxpayer may delegate these duties and still be considered a business: Cl: ferguson v fct (1979) - retired navy whom raised cattle. Methods characteristic of the particular line of business. Dairy farmer use planned breeding programs: sustained and frequent activity. Output much greater than what needed for domestic purposes:
