Private ruling: Am I in business as a farmer?
Date of advice: 28 June 2018
Published: September 2018
Ruling period: Year ended 30 June 20xx | Year ended 30 June 20xx | Year ended 30 June 20xx | Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Are you carrying on a business as a farmer? | A1: No.

Relevant facts and circumstances: You purchased a small acreage approximately less than 10 years ago. You subsequently bought two registered cows as pets a couple of years later. Your pet cows were becoming interested in the bull over the road and you felt it necessary to keep the girls at home, hence you bought a bull another couple of years after acquiring the cows. You know that these animals will breed. You have made no claims against taxation as you believe you are a hobby farmer. You are in drought and have had to purchase hay every week since you purchased the cows as the property is not big enough but they are your pets and you love them and this does not matter. You have intentions of showing any offspring that may occur as that is now your main intention. You realise that any sale of offspring may be an unknown amount of income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Detailed Reasoning - Carrying on a business: Taxation legislation defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. The question of whether a business is being carried on is a question of fact and degree and is a question that has been tested in many court cases. These cases have resulted in the development of a series of indicators that are now applied to determine the matter on the particular facts. The Commissioner’s view is contained in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? which lists the factors that are considered important in determining the question of business activity: ● whether the activity has a significant commercial purpose or character ● whether the taxpayer has more than just an intention to engage in business ● whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity ● whether there is regularity and repetition of the activity ● whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business ● whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit ● the size, scale and permanency of the activity, and ● whether the activity is better described as a hobby, a form of recreation or sporting activity. No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression. | Detailed Reasoning - Application to your circumstances: Overall, the above factors point to your activity being a hobby farm rather than a business. Your activity is conducted on a small scale and it appears that your efforts are not driven towards making the activity profitable but are pursued for other reasons. Consequently, your activities do not amount to the carrying on of a business and can be better described as a recreational pursuit or a hobby. Therefore, any amounts you receive in relation to this activity will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you have incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Future years: Although your activity has been described as a hobby, you can change from conducting a hobby to that of being in business (and visa versa) over time as your level of activity changes. Therefore you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business. You can request another ruling if you become unsure about this issue.