Private ruling: Am I in business - Primary Production
Published: December 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

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

Relevant facts and circumstances: You purchased a large property in 20XX. The property had been used as a farm for many years, however it had not been properly maintained and as a result the fences and farm buildings were in a state of disrepair, and weeds had not been controlled. On purchasing the property, your intention was to build a residential house to live in and effectively manage and run a successful livestock farming business (the activity). You have created a business plan, with the objective of running the property at full capacity for breeding and raising of livestock. The business plan discusses the preparation and management of the farm, which comprises of the following activities: • restoration of land • fencing, planting of shade trees, building farm buildings, purchasing farm equipment, and • purchasing, breeding and raising stock. You consider that most of the work done to the property in the past few years has been preliminary to the business activity commencing. However you contend that from 20XX-XX financial year you are carrying on a primary production business. You have purchased XX number of stock, which you intend on selling in during the 20XX-XX financial year. At approximately the same time you will purchase between XX and XX more head, for the purpose of breeding in the breeding program. You predict that you will start to earn income from the activity from the 20XX-XX financial year and make a profit from the activity from the 20XX-XX financial year. As both partners are employed externally and have children, the activity is being carried out on the weekends and one or two days during the week only. You have consulted an independent agricultural expert for advice on how to prepare the property and run a successful primary production enterprise.

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

Reasons for decision: Summary: Section 995-1 of the 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 particular facts. Taxation Ruling TR 97/11 incorporates the general factors. In the Commissioner's 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 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 - Applying the indicators to your circumstances: In your case, the activity has a significant commercial purpose or character. Whilst to date you have not earned income from the activity, in line with the business plan you have commenced purchasing stock for subsequent sale, and plan to purchase more stock as a part of your breeding program. This should result in income from the activity in the 20XX-XX financial year and profit from the activity in the 20XX-XX financial year. Whilst time is spent on the activity is minimal because of family and external work commitments, it is considered that substantial capital has been invested in preparing the property for the successful operation of a primary production business. Whilst the activity is in its infancy, the business plan shows an activity of significant size and scale, with regularity and repetition. You have kept records of the actual expenditure in the activity to date. You have consulted an industry expert for advice on how to prepare the property for the successful operation of a primary production activity. Based on the information you have provided, we consider that the activity has the necessary characteristics of a business for taxation purposes.