The paper "Determining Whether an Enterprise Is a Hobby or a Business" is a great example of a report on business. Subsection 995 of the ITAA 1997, defines a business enterprise in addition to issuing the criteria for determining whether a business is being performed. The section defines a business as including any profession, employment, trade, calling, or vocation excluding occupation as an employee. The determination of whether an enterprise is a business will be based on the words of Gummow and Hayne JJ in FCT v Murray where they stated that a business is not a thing or things but a course of conduct carried on for the purpose of profit and involves notions of continuity and repetition of actions.
The judge also stated that where an overall profit motive appears absent and the activity does not look like it will ever produce a profit; it is unlikely that the activity will amount to a business. It should be noted that the repetition stated above excludes an association formed for doing a particular act that is never to be repeated from being regarded as a business enterprise.
Furthermore, the high court in Spriggs & Riddell identified a number of indicia in determining the existence of a business. The factors that can be used in determining whether a business is a business and not a hobby are explained below; Does the enterprise have a profit-making motive- for an enterprise to be regarded as a business, it has to have the sole aim of making profits? In FCT v Stone, the judges held that if the enterprise has a view of profiting, the conclusion that the enterprise is a business will be easily reached.
However, a detailed survey and exact scrutiny of the enterprise’ s activities have to be carried out in concluding that the activities constitute carrying out of business. The scale of activities – although undoubtedly a relevant factor, it is not a determinative factor, unlike the profit motive. Although activities may have a limited scale, this does not prevent their classification as a business where other factors considered point to that conclusion as was held in Ferguson vs. FCT. Organization of the enterprise in a business-like manner and the use of the system – The court in Newton v Pyke observed that a business is conducted systematically.
Hence, an enterprise will be regarded as a business if it is carried out in an organized and systematic manner as opposed to an ad hoc basis. An activity, therefore, has to conform to the ordinary commercial principles if it has to amount to the carrying out of business. Repetition and regularity-a business enterprise will carry out similar sorts of activities on a repeated and regular basis.
As such, an activity that is carried out repetitively and regularly will not be considered a hobby but a business. This was the case in JR walker where the court held there were repetition and regularity in his activities of breeding of high-quality Angola goats. Hobby For taxation purposes, the carrying out of a hobby is not the same as carrying out a business. As such, income from a hobby will not be regarded as income for taxation purposes and is not accessible. In Ferguson at ATC 4265: ATR877, it was said that “ if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held as carrying out a business although his operations are fairly substantial. ” An enterprise will be considered a hobby when;