That brings us to the question, how does section 4(a) define business income? According to the ITA 1967 section 2, “business” is defined as “profession, vocation and trade and every manufacture, adventure or concern in the
nature of trade, but excludes employment”.
Now, let’s explore the ambiguity of that sentence. There is a blurry line between taxable or non-taxable income, so we will use the following examples to examine whether these three different types of activities—hobbies,
gambling, and illegal activities—need to be subject to tax.
Let’s evaluate hobbies—by itself, the activity is just an activity, nothing more. People operate businesses to generate profits. Many a time, people may start generating income from their hobbies. The thing is, even if you
make money from your hobby, it isn’t taxable unless it is a trade. However, determining whether the hobby has developed into a trade is easier said than done. Let’s explain this in a scenario.
Picture yourself as an antique collector.
As a hobby, you adore collecting antiques. One day, you invite your friend over one day and he spots an heirloom.
“How much for it?” they ask. You initially reject the proposition outright, assuming it belonged to your late grandmother.
However, your friend then makes you an offer you can’t refuse.
“What do you think about half a million?”
You accept the offer. Now, is this exchange considered a business income?
No, it isn’t. You are tax-free because this is a capital gain rather than a commercial transaction.
Let's continue this story by assuming that following that particular transaction, you have determined the monetary value of your antiques and have advertised their sale online.
This is then changing your hobby into a nature of trade, and thus, into a business. Therefore, what you sell and profit from later is a business income. Think you got the gist of it? Let’s analyse the next
activity.
This is a notable example to demonstrate what is considered a business in nature.
Gambling is a hobby if you are merely testing your luck, or when it is done at random intervals. For an activity of gambling to be considered a business income, it must be carried out in an organised and systematic
manner.
If you are a professional gambler, this indicates an organized or systematic manner that can be linked to your profession. Gains from this form of gambling are regarded as profits derived from business or a vocation,
which then is subjected to tax.
Finally, the most misunderstood topic when it comes to taxes—illegal activities. Many people believe that if you engage in criminal activities, you are naturally exempt from paying taxes. Logically, if you have committed
some sort of illegal activity, you would not want to disclose that fact to anyone else.
Nevertheless, keep in mind that gains or profits can be considered business income under the ITA 1967. The ITA 1967 does not only apply to a legitimate company. You may be surprised that a business does not need to be
registered under authorities to be subjected to taxes. Whether your activity is legal or illegal, if you run a business, you must pay tax for the profits you make.
Thus, as ridiculous as it sounds. Even if you are carrying out illegal activities, you cannot escape the fact that you still have to pay taxes.
