Am I Running a Direct Selling / MLM Business?

Posted on: June 24th, 2017 No Comments

With the ATO reviewing a number of direct selling / MLM business to access whether their independent contractors/associates are entitled to an Australian Business Number (ABN), our firm has compiled some general information to help explain the criteria in determining ABN entitlements. That is, am I running a business?

The intention of the taxpayer in engaging in the activity is a relevant indicator. However, there needs to also be an activity. (see Brennan J in Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497).

“The extent of activity determines whether a business is being carried on”

Factors which are relevant to demonstrating whether you are running a business include:

  • You have consulted with an accountant or business advisor;
  • You are advertising through social media or a webpage;
  • You have obtained the required business insurance (such as public liability);
  • You are undertaking activities of significant size and scale;
  • You have a business plan which demonstrates an intention to make a profit;
  • Your activities are systematic, repetitive and organised;
  • You are keeping records of activities and receipts of expenses;
  • You have the relevant knowledge or skill to operate the business.

Table 1 below can help determine if you are running a business or whether the activity can better be described as a hobby (which is a form of recreation or a sporting activity).

Table 1: Am I Operating a Business?

Indicators which suggest a business exists Indicators which suggest a business doesn’t exist
A significant commercial activity Not a significant commercial activity
Intention to carry on a business activity No intention to carry on a business activity
Intention to make a profit from the activity No intention to make a profit from the activity
The activity is or will be profitable The activity is inherently unprofitable
Repetition and regularity of activity Little repetition or regularity of activity
The activity is organised and carried on in a businesslike manner and records are kept The activity is not organised or carried on in a businesslike manner and no records are kept
Significant size and scale of the activity Small size and scale of activity
Not a hobby, recreation or sporting activity Is a hobby, recreation or sporting activity
A business plan exists There is no business plan
Commercial sales of product Sale of products to relatives and friends
You have the relevant knowledge or skill You lack the relevant knowledge or skill

It is a question of overall impression, rather than how many of the factors exist.

see http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9711/NAT/ATO/00001

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