For almost thirty years, anyone asking whether an individual was carrying on a business had to work from a ruling about primary production.
On 16 October 2026 the Commissioner issued Draft Taxation Ruling TR 2026/D2 Income tax: carrying on a business by an individual, which sets out the indicators the Commissioner treats as relevant to whether an individual's activity is a business, an investment or a hobby.
Comments close on 27 November 2026. The draft matters because the classification drives the tax outcome, and because it arrives at a point where side hustles, content creation, and online selling have made the question a mainstream one rather than a niche one.
What TR 2026/D2 does
The draft gives guidance to individuals on whether they are carrying on a business for the purposes of sections 6-5 and 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). If you carry on a business, receipts from the activity are generally assessable as ordinary income under section 6-5, and losses or outgoings necessarily incurred in carrying on the business for the purpose of gaining or producing assessable income are deductible under section 8-1.
The statutory definition offers little help. Subsection 995-1(1) does not define "carrying on a business", and defines "business" to include any profession, trade, employment, vocation or calling while excluding occupation as an employee. The Commissioner accordingly works from the common law, adopting the High Court's description in Commissioner of Taxation (Cth) v Murry [1998] HCA 42 (Murry) of a business as a course of conduct carried on for the purpose of profit involving notions of continuity and repetition of actions.
The draft lists seven indicators:
significant commercial purpose or character;
intention to carry on a business;
purpose and prospect of profit;
not a hobby or recreation;
organised and carried on in a business-like and systematic manner;
size and scale; and
repetition and regularity.
Those indicators must be weighed in combination and as a whole. No single indicator is decisive, and the answer depends on the overall impression formed once the activity has been assessed against them.
The draft does not deal with whether amounts are assessable or deductible on some basis other than carrying on a business, arrangements where others act for you under agency agreements, where you are a principal with limited involvement, or whether an activity is an enterprise for GST purposes even though it is not a business.
What has changed
The headline change is the audience. Until now, individuals and their advisers have taken the general indicators from Taxation Ruling TR 97/11, a ruling directed at the business of primary production. The ATO's own guidance has long pointed individuals to TR 97/11 on the footing that its principles can be applied more broadly, and has directed companies instead to TR 2019/1. TR 2019/1 itself records that guidance relevant to identifying whether an individual carries on a business is contained in TR 97/11.
TR 2026/D2 closes that gap with a ruling written for individuals. It does not displace the existing material.
The Commissioner states that the indicators are well established, that they are consistent with TR 97/11, and that the draft does not replace the more specific advice in TR 97/11 and other rulings on the topic, which should be read together with it. The related rulings list confirms that reach, taking in Taxation Rulings TR 92/3 and TR 92/4 on isolated transactions, TR 2005/1 on professional artists, TR 96/7 on record keeping, TR 2001/14 on non-commercial losses, and TR 97/11 and TR 2019/1.
The draft makes three structural changes:
The draft consolidates two of the TR 97/11 indicators into one. The business-like and systematic manner indicator now also carries the question of whether the activity is of the same kind and carried on in a similar manner to the ordinary trade in that line of business.
The draft separates organisation from execution. How the activity is organised is to be considered separately from how it is carried out, because an activity can be organised in a business-like manner while the way it is conducted lacks the repetition, system or commercial character ordinarily associated with a business.
The draft adds dedicated treatment of when a business begins and when it ends.
The draft also picks up recent authority, citing the Full Federal Court in Commissioner of Taxation v Morton [2026] FCAFC 31 (Morton) on the overall impression test alongside Martin v Federal Commissioner of Taxation [1953] HCA 100. Readers should consider that reference together with the ATO's Decision impact statement on Morton, which confirmed that the decision does not depart from the Commissioner's approach and that TR 97/11 and TR 92/3 continue to articulate the relevant analytical framework.
New or noteworthy positions
Several passages go further than practitioners will be used to seeing stated in ATO guidance.
Intention can be inferred, even where the taxpayer has not considered the question. The draft accepts that an intention to carry on a business need not be expressly stated and can be inferred objectively from the circumstances and the taxpayer's conduct. Example 2 illustrates the point with an elite shot-putter who employs a manager to negotiate sponsorships and appearances and never turns his mind to whether he is in business, yet whose intention is inferred from the way he conducts the activity. The draft also notes that if he had merely received grants offsetting the costs of training, travel and competition, without the associated commercial activity, that would be less likely to indicate an intention to carry on a business.
A third category sits between hobby and business. The draft expressly recognises activities that are neither hobbies nor businesses but that can still produce assessable income, including passive investments, isolated profit-making undertakings, and other income-producing activities. Example 6 applies this to a photographer who occasionally sells prints without advertising, seeking commissions, maintaining a client base or operating in a business-like way: the sales may give rise to assessable income as a profit-making undertaking, although the activity is neither a hobby nor a business. Advisers should expect this middle category to be significant in practice.
Hobby characterisation is given a checklist. The draft identifies five markers pointing to a hobby or private recreational pursuit: personal enjoyment as the primary motivation for continuing; the absence of any contract, formal obligation or arrangement about attendance, performance, timeframes or output; no steps taken to make the activity profitable or to operate it profitably; a small scale and non-commercial conduct; and receipts that are incidental to the activity or arise as a matter of convenience.
Innovative and novel business models get their own treatment. Where an individual adopts a new or evolving model, comparisons with other businesses in the same industry are of limited assistance, and the focus shifts to whether there is an identifiable system for making a profit, whether the activity has a purpose and prospect of profit and is regular and repeated, and whether the other characteristics associated with a business are present. The draft is explicit that novelty may change how the indicators present but does not remove the need to satisfy them in substance.
Scale cuts both ways, and the property examples are pointed. Larger scale generally supports a business conclusion, but a large activity may still be better characterised as an investment, and the smaller the scale the more important the other indicators become. Example 9 concerns an individual owning 15 residential properties worth $12 million generating $600,000 of annual rent, all managed by a real estate agent, whose involvement is limited to approving major expenditure, reviewing reports and deciding whether to retain or sell. The Commissioner concludes those are the activities of a passive investor and are not sufficient in themselves to constitute carrying on a business. By contrast, Example 10 accepts a jeweller making six or seven commissioned engagement rings a year as a business, on the basis that the limited sales reflect the bespoke nature of the product rather than a lack of commerciality.
Content creators and online sellers are squarely in scope. Example 5 traces a skincare review channel from hobby to business once the taxpayer engages a marketing firm and an agent, signs sponsorship and endorsement deals, offers paid subscriber content and enrols in advertising revenue programs. Case study 2 follows a comedy content creator through a management agreement, equipment upgrades, engaging a tax adviser, hiring staff and renting premises, and concludes that advertising revenue, creator fund payments, affiliate income, sponsorships and appearance fees are generally assessable, with deductions available for expenses incurred in carrying on the business. This sits alongside the ATO's web guidance for content creators and online sellers, which was last updated on 13 October 2026.
Commencement and cessation are addressed directly. A business starts when the activity has moved beyond preparatory stages and the taxpayer has decided to commence, has acquired the minimum level of business assets and has actually commenced operations. Example 13 denies commencement to a prospective coffee cart operator who has researched the market, tested machines, met roasters, prepared a business plan and saved sufficient capital, but has not obtained the required licence, acquired assets or begun selling. Preparatory expenditure is generally not deductible. On cessation, mere inactivity or temporary suspension does not end a business, and the draft lists indicators including the absence of trading, disposal of business assets, lack of ongoing administrative functions, termination of employee contracts, cancellation of ABN and GST registrations and the absence of an intention to resume trading. Continuing to receive income from a former business, such as royalties on intellectual property created earlier, does not keep the business on foot.
Practical implications
The draft proposes to apply both before and after its date of issue once finalised. That retrospective reach means the views in the draft are relevant to current and prior-year positions, not just future ones.
For taxpayers and advisers, the practical consequences fall into four areas:
Review side hustles and content activities now. Where a client has begun monetising an online channel, a market stall, or a collecting interest, the draft's analysis of when characterisation changes over time is the material to work through. An activity that began as a hobby can become a business later, and the reverse is also possible.
Documentation is where most positions will be won or lost. The draft lists the hallmarks of a business-like operation, including good record keeping, formal written contracts with suppliers and customers, obtaining expert advice, creating and following a business plan, market research and forecasting, and maintaining insurance. It also records that failing to keep proper records does not of itself mean an activity is not a business, although greater reliance will then be placed on the other indicators. Clients who want the business characterisation should be building the file contemporaneously.
Loss positions attract particular attention. An early-year loss caused by start-up costs does not prevent a business characterisation, as Example 4 demonstrates for an electrician with a plan for growing her customer base. Sustained losses are a different matter. Case study 3 concludes that a leatherworker who prices below cost for years and is unwilling to make the changes needed for profitability is not carrying on a business, so her receipts are generally not assessable and her expenses generally not deductible. Where a loss-making activity is a business, the non-commercial loss rules in Division 35 of the ITAA 1997 may still limit deductibility against other income.
Property and share portfolios need care. Example 8 treats a lawyer who researches and holds shares and managed funds for the long term as a passive investor rather than a business, notwithstanding the organised nature of her decisions. Example 9 reaches the same conclusion for a substantial agent-managed residential portfolio. For clients relying on business characterisation for small business concessions or deduction positions, the draft tightens rather than loosens the analysis.
The comment period is the opportunity to test the draft's treatment of the middle category of income-producing activity that is neither hobby nor business, and the proposed retrospective date of effect.
Submissions are due by 27 November 2026.
Takeaway
TR 2026/D2 does not rewrite the law on carrying on a business, and it does not purport to. What it does is give individuals a ruling of their own, applied to the activities they actually undertake, with worked examples covering streamers, content creators, athletes, online sellers, collectors, tradespeople, market stallholders and property investors.
The practical value sits in the examples, the new material on commencement and cessation, and the express recognition that an activity can produce assessable income without being either a hobby or a business.
Advisers should read it against TR 97/11, TR 2005/1, and TR 2019/1 rather than instead of them, and should revisit any client position that depends on the business line being drawn in a particular place.
If you would like to discuss how TR 2026/D2 affects a client's position, please contact a member of Sladen Legal's Federal Taxes team:
