Private ruling: Carrying on a business
Date of advice: 18 May 2026
Published: 27 July 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is the superannuation fund a small business entity in accordance with section 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purposes of satisfying section 40-155 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) to be regarded as an eligible entity for temporary full expensing (TFE) of depreciating assets in the 2021 income year? | A1: No.

Relevant facts and circumstances: 1. The farm includes a large number of X trees on more than XX, with the balance of land containing headland and watercourse. 2. In the relevant year, the superannuation fund also owned X lots of a commercial premises. 3. The superannuation fund charges an unrelated party (the unrelated party) and a related trust (the related trust) for solar power supplied from the solar-battery system linked to the lots, as well as the systems located on the farm. 4. During the 20YY income year the superannuation fund received the following sources of income: a. Rent from leases with: i. The related trust for the X orchid on the farm and ii. The related trust for the use of the commercial premises b. Separate monthly electricity charges from energy provided by its solar systems from: i. The related trust ii. The unrelated party 5. The monthly charge for solar electricity is not linked to usage, output or sales of X. It is determined by dividing the cost of the system by its ATO effective life and by 12, with an additional interest component calculated daily on the undepreciated balance at Limited Recourse Borrowing Arrangement (LRBA) rates. Activities as director of the corporate trustee of the superannuation fund Activities relating to the farm 6. Since 20YY, the director of the corporate trustee of the superannuation fund (Person A) has been planning, progressing and funding the development of infrastructure on the farm. The superannuation fund invested in: a. Installing irrigation to sustain the trees b. The irrigation system including bores, bore pumps, bore pump controllers, surface pumps, housing of the bore pumps, surface pumps and irrigation system controllers. c. The holding tank d. The legislated cloud-based monitoring for all pumped water. e. Cloud-based monitoring of the bore water levels. f. Grid connections for the bore hole 1, the surface pump and the fertigation system g. Solar systems to move the farm to nett zero h. The dam and roof harvesting as alternative water sources, when the bore is not functional i. Automated 2-wire field stations j. Installing solar systems to power the workers accommodation, the bore, irrigation and fertigation systems k. Purchasing and planting trees l. Repairing/replacing the bore after the 2019 drought destroyed the previous bore m. Building/maintaining accommodation for the seasonal workers n. Building the fertigation shed for the protection of the irrigation and fertigation system controllers and storing fertilisers and chemicals used on the farm o. Building a cold room for holding the X crates while they await collection by the pack house p. Building a manager's officer q. Shed extensions to house valuable and sensitive equipment such as electrohydraulic elevated work platforms, tractors, spreaders, mulchers, chain saws, sprayers and spray tanks r. accommodation for seasonal workers s. manager's office and on-site accommodation t. gravel and concrete roads to access the orchard u. terracing and drainage systems to prevent the trees contracting root rot v. Building and maintaining roads which allow access to the orchard w. Building fences which keep the local cattle out of the orchard. x. Earthworks to prepare access and ground works for the off-grid Rock Creek Solar pump system, bore hole 2 off-grid solar system and Bore hole 3 off -grid solar system. 7. In the superannuation fund, Person A undertakes the following activities: a. Arranging and updating leases with the related party b. Arranging valuations c. Attending DPI and X Industry business courses d. Arranging insurances and managing claims e. Obtaining and maintaining licences and permits including water licences, Local Land Services, firearms license, fire permits. f. Performing an annual Fresh Care Audit which is required for farms selling fresh fruit. g. Maintenance of the infrastructure, for example: i. wear and tear, pipe breakages, blockages and lightening damage to the irrigation system and its controllers ii. bore and surface pump routine maintenance iii. solar system repairs and maintenance iv. cold room repairs and maintenance v. accommodation repairs and maintenance vi. flood damage to roads and terraces vii. bush clearing for fire protection viii. shed repairs (leaking roofs, damaged whirly birds) h. Other activities, such as: i. managing legal and accounting requirements ii. managing ATO reporting obligations iii. updating business plans and budgets. Business plan 8. It was submitted that during the 20YY income year the business plan included, among other things, the following items/plans: a. Upgrading the fertigation machine to X channels b. Purchasing X bonded fertigation tanks c. Installing the tanks on mounds to allow for gravity to assist the flow from the tanks into the irrigation system d. Installing mixing tanks to drive financial efficiency by reducing the cost of solid vs premixed fertilisers e. Commissioning Sustainable Water to survey and assess the farm for bore hold sites f. Engaging AUS CSG to repair/replace the drought destroyed borehole g. Installing the tanks on mounds to allow for gravity to assist the flow from the tanks into the irrigation system h. Superannuation funding and building a holding tank for the irrigation system so that the automated irrigation controller can distinguish pumping water vs air i. Installing grid connections for the replacement bore holes j. Installing controllers for the replacement bores. Activities relating to the commercial property 9. Person A's work for the commercial premises entails: a. Arranging leases with the related and unrelated parties b. Arranging insurances and managing claims c. Arranging valuations d. Planning, installing and maintaining the solar system, and charging for the electricity supplied to the tenants e. Arranging Building design and development i. Engaging architects and town planners ii. Applications to council f. Attending Strata and Owner corporation meetings g. Arranging servicing of the air conditioning systems h. Applying for government grants to upgrade and enhance the premises, planning and managing the upgrades, reporting to the Department of Health as required by the grants i. Negotiating with strata for the exchange of common property for areas of X, to enable the upgrades mentioned above j. Attending strata meeting and investigating and fixing issues raised at strata meetings, e.g. correcting roof drainage deficiencies k. Attending to maintenance matters of the Lots and processing insurance claims for storm damage to the Lots; l. Applying for funding from banks and government grants for development and expansion of the X centre m. Managing legal (including the strata title changes mentioned above and the leases) and accountancy requirements; and n. Managing ATO reporting obligations. Other information 10. Up to the end of the 20YY income year, the superannuation fund has spent approximately $X to develop the farm. 11. Person A manages the farm and spends approximately X days per week running the farm, which could equate to X hours each week. 12. The superannuation fund raises passive rental income from the X orchard, by leasing more than X of the farm to the related party. 13. The annual rental amount is payable by the related party to the superannuation fund in monthly instalments. 14. The remaining area is used by the superannuation fund to provide electricity, irrigation, fertigation, chemical storage, general storage and accommodation. 15. The farm's finances (relevant to the superannuation fund) are recorded in the superannuation fund's accounts. 16. The superannuation fund keeps an activity calendar, a budget, and separate bank accounts. 17. The superannuation fund operates from both the farm location and the commercial premises. 18. Clause 8.2(g) of the of the Deed of Variation included as Annexure 2 specifically contemplates the Superannuation fund carrying on "a business, either directly or indirectly including an active business such as share trading, property development or primary production." 19. The aggregated turnover for the superannuation fund is less than $X. 20. The superannuation fund has been applying the simplified small business entity depreciation method on its assets. Superannuation Trust Deed 21. The superannuation fund's trust deed has been provided. Person A's activities as director of the corporate trustee of the related trust Activities related to the farm 22. Person A is the director of the trustee of the related trust. 23. The related trust operates a X and operates the farm. 24. Person A manages the farm and spends about X hours each fortnight running the farm and the X. 25. The related trust undertakes the following activities regarding the farm: a. Hiring and managing workers and contractors including running payroll b. Organising and overseeing: i. irrigation, fertigation, soil and leaf analysis ii. purchasing and applying mulch iii. mowing iv. weed control v. spraying program for pests and diseases vi. injecting the trees with phosphate to limit disease and increase production vii. picking viii. equipment maintenance and upgrades ix. sending produce to the packhouse x. annual Fresh Care accreditation of the farm xi. farm website c. Attending workplace performance reviews d. Attending X industry education days and conferences e. Attending DPI NSW farmers resilience program f. Managing legal and accountancy requirements g. Managing ATO reporting obligations. 26. The related trust uses the crop from the X orchard as business income. 27. Produce is sold to a Packhouse. 28. The farm's finances (relevant to the related trust) are recorded in the related trusts accounts under primary production. 29. The related trust has a separate bank account to the superannuation fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 328-C | Income Tax Assessment Act 1997 Subdivision 328-D | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 section 995-1 | Income Tax (Transitional Provisions) Act 1997 Subdivision 40-BB | Income Tax (Transitional Provisions) Act 1997 section 40-155 | Income Tax (Transitional Provisions) Act 1997 section 328-181

Reasons for decision: Summary: In the 20YY income year, the superannuation fund derived income primarily from leasing property and charging fixed electricity amounts associated with assets it owned. While the fund undertook extensive activities relating to asset ownership, development, maintenance and compliance, the operational X farming activities - including cultivation, harvesting and sale of produce - were carried out by the related trust, which derived the agricultural income. Further, having regard to the limited number of long-term leasing arrangements, the fund was not carrying on a business of leasing properties. Accordingly, the superannuation fund is not carrying on a business and is not a small business entity for the purposes of s 328-110 of the ITAA 1997 and s 40-155 of the IT(TP)A 1997. | Detailed Reasoning - Detailed reasoning: Temporary full expensing (TFE) is the immediate write-off of the cost of depreciating assets and relevant additional expenditure in accordance with the rules in: • Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A), applicable to business entities generally, and • section 328-181 of the IT(TP)A which modifies the operation of rules in Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997), applicable to small business entities choosing simplified depreciation. Section 40-155 of the IT(TP)A is about temporary full expensing of deprecating assets. The section applies to a taxpayer for an income year if: (a) you are a small business entity for the income year; or (b) you would be a small business entity for the income year if: (i) each reference in Subdivision 328-C of the Income Tax Assessment Act 1997 (about what is a small business entity) to $10 million were instead a reference to $5 billion; and (ii) the reference in paragraph 328-110(5)(b) of that Act to a small business entity were instead a reference to an entity covered by section 40-155. An entity will be eligible for TFE if it: • satisfies a test based on aggregated turnover, referred to as the eligible entity test • is a corporate tax entity and satisfies a test based on total income, referred to as the alternative income test. Under the eligible entity test, an entity must satisfy the definition of 'small business entity' in Subdivision 328-C of the ITAA 1997 to be eligible for TFE for an income year, or satisfy it on the basis that each reference to $10 million in Subdivision 328-C of the ITAA 1997 (about aggregated turnover) was instead a reference to $5 billion. Under Subdivision 328-C of the ITAA 1997, an entity will only be a small business entity if, among other things, it carries on a business in the relevant income year and satisfies the aggregated turnover threshold. The definition of a business as defined in section 995-1 of the ITAA 1997 includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Whether an entity is carrying on a business is therefore determinative of whether it can be a small business entity, and in turn whether it can access TFE. Whether an entity is carrying on a business is a question of fact and degree, assessed having regard to the indicators set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11). While TR 97/11 is directed to primary production, the indicators it identifies have been consistently applied more broadly in determining whether a business is being carried on. TR 97/11 identifies a number of indicators relevant to determining whether a business is being carried on, including: • whether the activity has a significant commercial purpose or character; • whether the taxpayer has more than a mere intention to engage in business; • whether there is a purpose and prospect of profit; • the repetition and regularity of the activity; • whether the activity is carried on in a manner similar to ordinary trade; • whether the activity is planned, organised and carried on in a business-like manner; • the size, scale and permanency of the activity; and • whether the activity is better characterised as a hobby or investment. No single indicator is determinative; rather, the indicators must be considered together to form a general impression. | Detailed Reasoning - Application to circumstances: Below we have considered each indicator from TR 97/11 and applied it against the circumstances of the superannuation fund. | Detailed Reasoning - Significant commercial purpose or character: The existence of a significant commercial purpose or character is not determined by any single factor but is a generalisation drawn from the interaction of several indicators, particularly the size and scale of the activity, the repetition and regularity of the activities, and indicators of profit or intention to make a profit. These indicators must be considered collectively and by comparison with similar activities that are accepted as being carried on as a business. In the 20YY income year, the superannuation fund undertook extensive activities relating to the ownership, development and management of the farm, including installing and maintaining infrastructure, arranging leases, obtaining permits and licences, and managing compliance, insurance and administrative obligations. These activities demonstrate an organised approach to managing the fund's assets. However, the operational farming activities that generate X production and sales - including hiring labour, managing cultivation, harvesting, pest and disease control, packing and selling produce - were carried out by the related trust, which recorded the farming income and expenses in its accounts and sold produce to a commercial packhouse. Accordingly, while the scale of infrastructure investment by the fund is substantial, it supports the fund's role as asset owner/lessor, rather than indicating that the fund itself conducted a primary production business in a commercially viable manner comparable to those in the industry. Further, the superannuation fund's activities are not regarded as the carrying on of a business of renting or leasing property. While the fund derives rental income and electricity charges, the leasing arrangements are limited in scale and are predominantly with a related entity, and with one unrelated party. Although size and scale are not determinative, rental property businesses that are accepted as carrying on a business typically involve a broader commercial leasing operation, commonly with multiple properties and/or multiple tenants, and activities that extend beyond passive holding and receipt of rent. In Cripps v. FC of T [1999] AATA 937 ( Cripps ) the taxpayer and his spouse purchased, as joint tenants, 14 townhouses which they rented out. The Administrative Appeals Tribunal found that the taxpayer and their spouse were passive investors and were not in the business of deriving income from rental properties. The number of the properties involved and the nature and extent of the services offered were key factors in this decision. When assessed overall, and having regard to the limited tenant base, the related-party lessee, and the absence of primary production operations being undertaken by the fund, the fund's activities do not display the significant commercial purpose or character required to be regarded as carrying on a business in the 20YY income year. For completeness, while the superannuation fund owns multiple properties and derives rental income, those circumstances do not, of themselves, establish that the fund carried on a business of renting or leasing property in the 20YY income year. When assessed objectively, the fund's activities are more consistent with passive investment and asset ownership than with the carrying on of a business of renting or leasing property. The fund does not actively market properties, seek to expand or rotate its tenant base, or engage in commercial leasing activities beyond long-term arrangements that secure stable income from largely related parties. When assessed objectively, the fund's activities remain more consistent with passive investment and asset ownership than with the carrying on of a rental property business. | Detailed Reasoning - Intention: As outlined in TR 97/11, intention must be objectively demonstrated by the activities undertaken, rather than merely asserted, and must extend beyond preparatory or preliminary steps. In the 20YY income year, the superannuation fund did not conduct the primary production activities that generated agricultural income. While there is an overall intention for X production to be profitable, the harvesting and sale of produce were undertaken by the related trust, which derived the farming income and bore the commercial risks of production. Accordingly, the superannuation fund did not demonstrate an intention to make a profit from carrying on a primary production business in its own right. The superannuation fund did, however, demonstrate an intention to earn income from leasing assets, primarily through fixed rental payments and ancillary charges. That intention is evidenced by long-term lease arrangements and systematic asset management. Nevertheless, an intention to profit, of itself, is not sufficient to establish that a business is being carried on. When considered objectively, the fund's activities - leasing arrangements predominantly to related parties and the absence of broader commercial leasing operations - are consistent with an intention to earn investment returns, rather than to carry on a business of renting or leasing property. | Detailed Reasoning - Purpose and prospect of profit: As explained in TR 97/11, business activities are ordinarily undertaken for the purpose of profit on a continuous and repetitive basis, and it is relevant to consider whether the activities could realistically result in a profit. In the 20YY income year, the superannuation fund was clearly engaged in activities directed towards generating income on an ongoing basis. However, the primary production activities that generated X sales revenue were undertaken by the related trust, which conducted the farming operations and derived the proceeds from the sale of produce. The superannuation fund did not itself derive income from harvesting or selling produce, and therefore did not have a prospect of profit from primary production activities in its own right. The superannuation fund did derive income from leasing assets and charging electricity amounts, and this demonstrates an intention to earn a return from those activities. However, the prospect of profit evidenced is one of investment income, consisting of fixed rental payments and cost-recovery charges for electricity, rather than profit arising from the conduct of commercial business operations. The fund's returns were not dependent on production levels, market prices or other commercial risks typically associated with operating a business, but instead reflected stable income outcomes consistent with asset ownership. Accordingly, while there is an overall profit motive, this indicator, when assessed objectively, supports the view that the superannuation fund's activities were directed toward earning investment returns, rather than carrying on a business of primary production or a business of renting or leasing property. | Detailed Reasoning - Repetition and regularity of the activity: TR 97/11 explains that the repeated undertaking of similar activities on a regular and ongoing basis supports a finding that a business is being carried on, particularly where those activities are continuous and directed toward commercial outcomes, as illustrated in Hope and JR Walker (Hope v. Bathurst City Council 80 ATC 4386 at p. 4390; (1980) 144 C.L.R. 1 at p. 9; FC of T v. JR Walker 85 ATC 4179; (1985) 16 ATR 331). The taxpayer should undertake at least the minimum level of activities necessary to maintain a commercial quantity and quality of product for sale, although the existence and extent of such minimum levels will depend on the nature of the activity. In the 20YY income year, the superannuation fund's activities were repeated and regular only to the extent of leasing property and charging ancillary amounts, including arranging leases, maintaining infrastructure, and receiving rental and electricity income. The superannuation fund did not undertake repeated or regular activities directed toward the production, harvesting or sale of agricultural produce, which were instead carried out by the related trust on an ongoing basis. Accordingly, the repetition and regularity of activities point to the superannuation fund carrying on asset ownership and leasing activities, rather than a business of primary production. | Detailed Reasoning - Carried on in a manner similar to ordinary trade: An activity is more likely to be carrying on of a business where it is of the same kind, and carried on in the same way, as activities ordinarily undertaken by others in the relevant industry. The comparison is about how businesses in the industry typically operate, and whether the activity displays commercial characteristics capable of supporting profitability. In the 20YY income year, the superannuation fund did not carry on primary production activities in a manner characteristic of the farming industry. While the fund owned the farm and invested significantly in infrastructure, it did not undertake the operational farming activities ordinarily carried out by primary producers, such as cultivating, harvesting, managing labour, and selling produce to market. Those activities were undertaken by the related trust, which derived the agricultural sales income and bore the commercial risks associated with production. Accordingly, when compared to others in the primary production industry, the superannuation fund's activities more closely resemble those of a landowner or lessor, rather than a farming business. The superannuation fund's activities also do not display the characteristics of a business of renting or leasing property. In the 20YY income year, the fund leased the farm to a single related party and the X premises to the related trust and one unrelated tenant, deriving rental income and electricity charges under long-term arrangements. There is no evidence of multiple tenants, active tenant sourcing, frequent turnover of leases, or a scale of operations comparable to those typically seen in rental property businesses. When viewed against the activities of commercial rental property enterprises, which ordinarily involve broader leasing operations and a greater degree of commercial leasing activity, the fund's arrangements are more appropriately characterised as passive investment rather than the carrying on of a rental property business. | Detailed Reasoning - Planned, organised and carried on in a business-like manner: Carrying on a business ordinarily involves activities being conducted in a systematic, organised and businesslike manner, rather than on an ad hoc basis, and generally in accordance with ordinary commercial principles. While the superannuation fund's activities in the 20YY income year were organised and involved systems such as record-keeping, budgeting, infrastructure planning and compliance management, these activities were directed toward asset ownership, leasing arrangements and asset maintenance, rather than the conduct of operational farming or commercial leasing activities. The superannuation fund's activities therefore support a characterisation of structured investment and property management, rather than the carrying on of a business of primary production or a business of renting or leasing property. | Detailed Reasoning - Size, scale and permanency of the activity: Though not determinative, the size or scale of an activity is a relevant indicator in determining whether a business is being carried on, with larger-scale activities more likely to constitute a business. The smaller the scale of the activity the more important the other indicators become when deciding whether a taxpayer is carrying on a business. In this case, the superannuation fund did not undertake any primary production activities in the 20YY income year, and therefore the size and scale of primary production activity is not relevant. In considering whether the fund carried on a business of renting or leasing property, the scale of those activities was limited. The fund leased the farm to a single related trust and leased the X premises one related party and one unrelated party, under long-term arrangements. While scale is not determinative, rental property activities that are accepted as carrying on a business typically involve a larger number of properties or tenants and a broader level of commercial leasing activity. When considered in light of the limited number of tenants and the related-party arrangements, the scale of the superannuation fund's activities weighs towards a conclusion that it was engaged in passive rental activity, rather than carrying on a business of renting or leasing property. | Detailed Reasoning - Whether the activity is better characterised as a hobby or recreation: An activity is less likely to constitute the carrying on of a business where it is more properly characterised as a hobby or private pursuit, rather than an activity undertaken with a commercial objective. In this case, while the superannuation fund's activities are not recreational or hobby-like, they are more accurately characterised as passive investment and asset ownership, rather than the carrying on of a business of primary production or renting or leasing property. | Detailed Reasoning - Alternative view - additional services in a leasing/rental business: Additional services can, in some circumstances, indicate that leasing activities go beyond passive investment and amount to the carrying on of a business of renting or leasing property. This generally occurs where the services provided are substantial, ongoing and tenant-facing, and form an integral part of what is being commercially offered to tenants, rather than being merely incidental to the ownership and letting of property. Examples typically include serviced or short-stay accommodation, boarding houses or similar arrangements where income is derived not only from the right to occupy property, but from the provision of regular services requiring active management, labour and skill. In this case, while the superannuation fund provides electricity and accommodation arrangements for AMDT's farm workers, these activities are secondary to the ownership and leasing of property and are charged on a cost-recovery basis, calculated by reference to depreciation and interest rather than commercial service fees. The services do not involve the provision of substantial or independent commercial services to tenants, are not linked to usage, output or performance, and do not expose the fund to operational or market risk beyond that ordinarily associated with asset ownership. The arrangements are primarily long-term and mostly involve related parties, and do not reflect the type or scale of activities typically undertaken by entities carrying on a business of renting or leasing property. The provision of these additional services does not alter the character of the superannuation fund's activities or income, which remain those of passive investment and property ownership, rather than the carrying on of a business of renting or leasing property. | Detailed Reasoning - Conclusion: To be a small business entity under s 328-110 ITAA 1997, an entity must carry on a business and satisfy the relevant turnover requirement. For the 20YY income year, the superannuation fund derived income primarily from property rentals and electricity charges. On the facts, the superannuation fund's activities are predominantly those of an asset owner/lessor, including arranging and updating leases, arranging valuations, planning and managing installation and maintenance of infrastructure, arranging insurances, and obtaining and maintaining licences and permits. The primary production operations on the farm are carried out by the related trust. The related trust hires and manages workers and contractors and undertakes the operational activities associated with X production (including X). The related trust records the farm's finances in its accounts under primary production and sells the produce to a Packhouse, generating the X sales revenue. Accordingly, while the superannuation fund has made substantial capital investments in the farm infrastructure and undertakes ongoing asset management activities, the facts indicate that it receives passive rental income from leasing the orchard area to the related trust and income from supplying electricity, whereas the related trust conducts the primary production business activities that generate agricultural production and sales. On this basis, the superannuation fund is not carrying on a business for the purposes of s 328-110 ITAA 1997 in the 20YY income year. As the superannuation fund is not a small business entity, it does not satisfy s 40-155 IT(TP)A 1997 to be an eligible entity for temporary full expensing for the 20YY income year.

Is the superannuation fund a small business entity in accordance with section 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purposes of satisfying section 40-155 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) to be regarded as an eligible entity for temporary full expensing (TFE) of depreciating assets in the 20YY income year?