Private ruling: Primary production
Date of advice: 14 August 2018
Published: October 2018
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you carrying on a business of primary production? | A1: Yes.

Relevant facts and circumstances: You have been breeding dogs for a number of years. You are a self-taught breeder. You have all relevant licenses and permits to breed dogs. You have no employees. You have no business plan. You have X breeding bitches. You have X stud dogs. You currently have X litter of two week old dogs and X pups six months old. X pups are training pups for sale and X are untrained for sale. You get between $XXXX and $XXXXX for trained dogs. In the 2016 income year you had X litters. In the 2017 income year you had X litters. In the 2018 income year you had X litters. The pups that are unable to be trained are given away as pets. You spend 30 hours a week on dog breeding activities. You spend 3-4 hours per week training other people’s dogs. You advertise your pups and services on various web sites and word of mouth. You have a waiting list of about 2-3 years for trained pups. You have established facilities to breed your dogs. You do not receive assessable income from any other sources.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) 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. The courts have developed a series of indicators that are applied to determine the matter on the facts provided. Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes. In the Commissioners view, the factors that are considered important in determining the question of business activity are: ● whether the activity has a significant commercial purpose or character ● whether the taxpayer has more than just an intention to engage in business ● 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 out 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 a 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: After consideration of the above indicators, it follows that you are carrying on a business of dog breeding and training for tax purposes. You breed and train dogs in a businesslike manner. You sell trained pups and you train other owner’s pups and you profit from this activity. There is a regularity and repetition to your activities and you do not receive income from any other sources. You have been breeding dogs for a number of years and you sell trained dogs to make a profit. Under section 995-1 of the ITAA 1997 primary production business includes a business of maintaining animals for the purpose of selling them or their bodily produce (including natural increase). The Commissioner is satisfied that you are carrying on a business of primary production as a dog breeder and trainer as you are maintaining animals for the purpose of selling them.