Question

Kayla, an Australian resident taxpayer, works as a physiotherapist at the local hospital, but in her spare time, she is an artist. On weekends, Kayla will often take her paintings to markets to sell and has started to gain a following for her work. During the year ended 2021, Kayla sold paintings to the value of $6,000 which she didnt declare for income tax purposes as she believed it was a hobby and therefore not assessable.

In August 2021, Kayla paid a marketing firm $4,000 to create a website for her and $300 to have some business cards and flyers printed. She now has clients who commission her artwork and has also been approached to exhibit paintings in the local art gallery. Currently, for the financial year-to-date she has earned $12,000 in painting sales. She has also incurred $5,000 on new paints and materials, $2,000 on market stall fees and $600 on other advertising costs.

In November 2021, Kayla reduced her hours at the hospital to only three days per week so she could concentrate on her painting and meet the ever-increasing demand. On the other two days, weekends and most nights, Kayla just attends to matters relating to her art, including advertising, bookkeeping, attendance at market stalls and exhibitions and of course, painting.

One of Kayla's friends has told her that she needs to register her activity as a business and pay tax on the income.

Required:

With reference to relevant legal authority and based on the information given, advise Kayla whether she would be in business for tax purposes for the year ended 30 June 2022. (10 marks)