ATO ID 2003/726: Definition of live stock and animal embryos
Date of decision: 30 July 2003
Year of income: Year ending 30 June 2004
Business line: Private Groups and High Wealth Individuals

Issue
Does the definition of live stock, in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), include animal embryos?

Decision
No. The definition of live stock, in subsection 995-1(1) of the ITAA 1997, does not include animal embryos.

Facts
The taxpayer is carrying on a business of primary production. Animal embryos are acquired and held for the purpose of artificially breeding live stock.

Reasons for decision
Summary: The term 'live stock' is defined in subsection 995-1(1) of the ITAA 1997: live stock does not include animals used as beasts of burden or working beasts in a business other than a primary production business. Rather than outlining what is considered to be live stock this definition merely states which animals are not considered to be live stock. However, in Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105; (1951) 9 ATD 337; (1951) 5 AITR 214 ( Wade's Case ), the High Court considered that this definition infers that all animals that are used in primary production are included in the definition of live stock. Per Dixon and Fullagar JJ: There is a definition of livestock which, by inference, makes it clear that all animals are to be included in the case of a business of primary production. Live stock are specifically included in the definition of trading stock by virtue of paragraph 70-10(b) of the ITAA 1997, and will therefore always be considered to be trading stock. This means that the purchase and sale of live stock will always be on revenue account regardless of how the live stock are actually used in the business. This was made clear in Wade's Case where dairy cattle were considered trading stock (even though it was the milk rather than the cattle that the taxpayer actually traded in), and compensation received for the loss of the dairy cattle was found to be income rather than capital. In contrast, in AAT Case 8671 (1993) 25 ATR 1130; Case 17/93 93 ATC 214, Dr P Gerber found that the cost of cattle embryos acquired for implantation into recipient cows was 'surely an outgoing of capital'. This indicates that Dr Gerber did not consider the embryos to be live stock, the purchase of which would always be on revenue account as a purchase of trading stock. Taxation Ruling TR 93/9 also suggests that embryos are not live stock. Paragraph 7 of that Ruling discusses when an item becomes trading stock and draws a distinction between embryos and live animals. The Ruling refers to the process by which 'an embryo grows into a live animal' indicating that an embryo is something less than a live animal. Taxation Ruling TR 93/9 equates the process by which an embryo grows into a live animal with the process by which seed grows into a crop or raw materials are made into a manufactured article. Therefore, just as seed is not a harvested crop, and raw materials are not manufactured goods, neither are embryos live stock. Example two of TR 93/9 provides further support for this conclusion. The example used in the Ruling states that embryos purchased by a cattle farmer for the purpose of implanting in cows are not held as trading stock by the farmer. This is consistent with the decision of Dr Gerber mentioned above and illustrates that embryos are not livestock as the live stock of a cattle farmer would always be held as trading stock. For these reasons, it is considered that the definition of live stock in subsection 995-1(1) of the ITAA 1997 does not include animal embryos. Although animal embryos are not considered live stock, they will still be considered trading stock under paragraph 70-10(a) of the ITAA 1997 if they are held for sale or exchange in the ordinary course of a business.

Legislative references: Income Tax Assessment Act 1997 subsection 995-1(1) paragraph 70-10(a) paragraph 70-10(b)
Case references: Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105 9 ATD 337 (1951) 5 AITR 214
Related public rulings and determinations: Taxation Ruling TR 93/9
Subject references: Livestock breeding Livestock industry Primary production