ATO guidance on what it is meant by ‘carrying on a business’
Recent changes to the corporate tax rate for certain smaller companies has resulted in the necessity to re-consider whether all companies are in fact carrying on a business.
The ATO has now stated that it is not possible to definitively state whether a particular company is carrying on a business.
Rather, it is a question of fact and is based on the overall impression of the activities of a company and the relevant indicia of whether a business is carried on.
However, where a company is established and maintained to make profit for its shareholders, and invests its assets in gainful activities that have a prospect of profit, then it is likely to be carrying on business. This is so even if the company’s activities are relatively passive, and its activities consist of receiving rents or returns on its investments and distributing them to shareholders. The ATO is intending to provide further guidance on the matter.