Private ruling: Primary production-non-commercial losses
Date of advice: 17 September 2025
Published: 17 November 2025
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your primary production activity in your calculation of taxable income for the 2023-24 and 2024-25 financial years | A1: No.

Relevant facts and circumstances: Your income is over $X. You intend to undertake a number of primary production activities including seedling planting, and growing fruit trees and olive trees. You have secured suitable land on which to undertake these activities. You have no prior experience in primary production however, you intend to complete a certificate III once your operation is established to acquire the skills and knowledge needed to manage your operation. You have sought the advice of a consultant with over 50 years of industry experience and intend to employ a full-time qualified assistant to undertake the day-to-day conduct of your operation once it is established. Your business strategy includes phased growth that balances financial sustainability with long term scalability. Work with seedling planting is scheduled to begin in the 2025-26 financial year with an initial trial of a number of varieties. You will then narrow the number of varieties you are working with down to the best performers, and progressively increase the number of your stock over a period of several years. You will also be taking on stock for other primary production activities over these coming years. You intend to achieve commercial viability in each of these activities through scaling to meet and exceed industry benchmarks for productivity. Your research into the capital requirements of your planned activity has included quotes for infrastructure, discussions with experts on the equipment and tools you will need, and site planning to ensure the efficiency and scalability of your activities. You have undertaken research into the production of each primary production activity you intend to undertake. This has included research into your target markets and intended position in those markets. You will be funding these activities yourself without any external finance or investment. You are a member of the appropriate industry organisations and will continue to use their industry resources, training and networking opportunities to develop your capabilities and seek expert advice. You will also engage legal and insurance advisors to ensure compliance with local government, zoning and building codes, workplace safety, and other primary production regulations. You aim to make a profit by selling directly to consumers, large retailers, wholesale distributors or niche markets. You expect your activities will become profitable by the end of the relevant period. You plan to maximise your income from these activities by focusing on your primary activity as you see this as your main revenue driver. You also intend to take a multi-channel sales approach and add value to your produce. You intend to minimise costs through efficiencies gained from the shared use of infrastructure across the different activities you are undertaking, matching your produce to demand, and bulk purchasing of the supplies. You have integrated risk management into your business using protocols and guidelines from industry bodies and market diversification through multiple sales channels. You also intend to manage financial risks through contingency budgeting and comprehensive insurance coverage. You intend to keep comprehensive records across all operational, financial, and compliance areas to ensure you are meeting your obligations. All records will be kept in secure cloud server storage with backup, and as hard copy where required. The activities you have undertaken to date included land acquisition, infrastructure planning and installation, site planning, discussions with suppliers on the consumables you will need, investigation of suitable stock lines, and attendance at industry trade shows and association events for market research. You have spent 10-15 hours a week on these activities in the relevant financial year. You intend to start your primary production activities when installation of the necessary infrastructure is complete. You expect the necessary infrastructure to be operational in the first quarter of the 2025-26 financial year. You intend to increase the number of hours you will be engaged in these activities through the relevant period to the point where you are running the operation on a full-time basis. You will remain in full time employment elsewhere until that time. You also intend to employ additional seasonal and casual workers during peak production periods.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 Division 35(1)(c) | Income Tax Assessment Act 1997 paragraph 35-10(1)(a) | Income Tax Assessment Act 1997 subsection 35-10(4) | Income Tax Assessment Act 1997 subsection 35-55(1) | Income Tax Assessment Act 1997 subsection 35-5(2) | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: Division 35 of the ITAA 1997 prevents losses from a non-commercial business activity carried out by an individual taxpayer from being offset against other assessable income in the year in which the loss is incurred, unless: • the individual meets the income requirement and the business activity satisfies one of the 4 stipulated tests (paragraph 35-10(1)(a)); • an exception in subsection 35-10(4) applies; or • the Commissioner exercises the discretion in subsection 35-55(1) for the business activity for one or more income years. Subsection 35-5(2) of the ITAA 1997 specifies that Division 35 is not intended to apply to activities that do not amount to carrying on a business. Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. Further guidance on whether an individual can be said to be carrying on a business or to have commenced carrying on a business can be found in case law. In the case of Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 Hill J stated that whether or not an activity amounts to carrying on a business for taxation purposes is a question of fact. There is no exhaustive or determinative definition which can be applied to answer this question. The facts of each case must be examined. In Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, Webb J said: The test is both subjective and objective: it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained. When does a business activity commence? The actual date of commencement of a business activity is a question of fact ( Goodman Fielder Wattie Ltd v. FC of T 91 ATC 4438; (1991) 22 ATR 26) ( Goodman Fielder Wattie ). For a business activity to have commenced a person must have: • purpose, intention and a decision to commence the business activity • acquired a minimum level of business assets to allow that business activity to be carried on, and • actually commenced business operations ( Calkin v. CIR [1984] 1 NZLR 440). A mere intention to start carrying on the business activity will not be sufficient. For example, if your business activity is characterised as the manufacturing and selling of a product, the business would generally be considered to commence once you have manufactured and begun selling the product. Alternatively, if your business activity is characterised as a primary production activity, involving the planting and cultivating of trees, then the planting of the trees could be seen as the commencement of that business. You intend to carry on a business of primary production with your first activity, and to diversify into other primary production activities. We have considered the indicators set out above to determine whether this business activity has commenced. Purpose, Intention and Decision The intention and purpose of a taxpayer in engaging in an activity is relevant to when a business commences. However, an intention to commence a business alone will not determine that the business activity has actually commenced. The chain of events leading to the commencement or start-up of a business activity often begins with a mere intention to establish the business activity. This is developed by researching the proposed business and, in some instances, by experiment. This process culminates in a final decision on whether to commence business. However, not all businesses commence in such an orderly manner. It is clear from the information you have provided that you have the intention to establish your primary production activity as evidenced by the following activities: • You have formulated a business plan and committed time and financial resources to the establishment of a business structure for your activity. • You have undertaken the relevant research into the requirement for growing and making commodities you intend to produce as well as the potential markets. Acquisition of a minimum level of business assets to allow that business activity to be carried on Most business activities have a structure that provides the framework of the business. It is usually a collection of capital assets. What the particular capital assets are will depend on the particular business activity. In Calkin v. CIR [1984] 1 NZLR 440 Richardson J said at 446-447: Clearly it is not sufficient that the taxpayer has made a commitment to engage in business: he must first establish a profit-making structure and begin ordinary business operations. For a business activity to commence, an appropriate business structure should be in place and begin ordinary business operations. As to what the business structure will consist of, and its size, will be a question of fact and degree, and will depend on the nature of the business activity. Your planned primary activity consists of producing seedlings. You also plan to grow and sell fruit and vegetables and produce olive oil for sale. In your case, you have purchased land that is suitable for your proposed business activity. You have also commenced the construction of your greenhouse and installation of the necessary infrastructure (including a workshop/processing area and irrigation and fertigation systems). Commencement of Business Operations The carrying on of a business is not a matter merely of intention. It is a matter of activity. As noted by Brennan J in Inglis v Federal Commissioner of Taxation (1979) 10 ATR 493; 80 ATC 4001, the level of activity is important in deciding whether a business is being carried on. In Hope v The Council of the City of Bathurst 80 ATC 4386 (1980) 144 CLR 1 Mason J considered the question of whether 'transactions were entered into on a continuous and repetitive bases for the purpose of making a profit' significant in concluding that a business was being carried on. The permanent character of the activity in question was another indicator that might support this conclusion. In Hadlow and FC of T [2002] AATA 1250; (2002) 2002 ATC 2294; (2002) 51 ATR 1197 the Small Taxation Claims Tribunal considered the amounts incurred by a taxpayer to research and develop a book. The question to be decided was whether the activities were merely preparatory and preliminary or whether the activity had reached a stage where it was able to be characterised as a business. In concluding that the activity was not carried on as a business in the relevant years, member Mowbray stated at paragraph 26: Clearly Mr Hadlow has the subjective intention to carry on a business, but that is not sufficient. There must be business activity. There is a real question whether the activities to date are merely preparatory or preliminary (see Goodman Fielder Wattie at 4447), and whether the project has reached the stage where it is able to be characterised as a business. There has been much activity but the concept of business does not equate with being busy ( Goodman Fielder Wattie at 4447; 386; 339). Mr Hadlow has researched, undertaken travel, and visited museums, libraries and farms in pursuit of a particularly interesting topic. He has expended money but has made no sales, received no advances nor signed any contracts. As previously discussed, you have committed to engage in primary production activity and you have undertaken the preparatory steps by having a business plan, conducting the relevant research and commencing the construction of greenhouse and installation of the necessary infrastructure. Whilst you have taken steps towards establishing your business activity, you have not yet started planting any of the crops you intend to grow that would allow you to enter into continuous and repetitive transactions for the purpose of making a profit from these primary production activities. The activities you have undertaken to date cannot be characterised as having commenced a business activity. | Detailed Reasoning - Conclusion: The extent of activity determines whether a business activity has commenced. In your case, the level of activity you have undertaken to date cannot be characterised as having commenced your business activity as you have not started planting any of the crops you intend to grow. Accordingly, Division 35 of the ITAA 1997 will not apply to allow you to offset your losses against your other income in the 20xx-xx and 20xx-xx income years.