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.