Private ruling: Am I in business of farming
Date of advice: 11 November 2021
Published: January 2022
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Am I in the business of farming? | A1: Yes. Having regard to your circumstances and the relevant factors contained in Taxation Ruling TR 97/11 you are carrying on a business.

Relevant facts and circumstances: You acquired a property several years ago which you which you operate a farm on. You are a sole trader who receives wages and salary income, passive income and is carrying out primary production activities. You are also employed on a x day on x day off roster and you stay on site during your rostered days on. On your rostered days off a large proportion of your time is spent working on and improving your farm. You previously leased out part of the property, to another farmer to grow crops. A portion of the land was excluded from the lease agreement which you were preparing for other farming purposes. Due to the nature of the agreement, income from the lease was still being receipted through to the following financial year. When the Lessee harvested their crop, you received an agreed upon percentage as a Lien payment. Due to the payment method used by the local authorities, proceeds are paid to the farmers over an extended period for crop which was harvested at an earlier point in time. For example, crops harvested in one season (calendar year) do not get receipted until the following financial year, therefore you were receiving lease income in the financial year after the lease was terminated. While the farm is small by regional standards, it yields an average tonnage to hectare crop over the season. Due to the expansion of the paddocks and the time lapse between planting and harvesting the crop you have suffered losses and larger than usual expenses in the 20XX-XX financial year. However, your intention is to make a profit in the future and the crop is guaranteed to be sold and a pricing model has been agreed upon and locked in prior to the crop being harvested. In order to yield a quality crop, a soil tester was engaged to find out the needs of the farm which resulted in a suitable action plan on the fertilization and spraying of the paddocks. While the farmland had paddocks with a growing crop in the 20XX-XX financial year, you had also started developing & expanding by preparing land for more planting. This resulted in additional hectares being planted. In the 20XX-XX financial year you intend to plant more hectares of land to further increase crop production. Farming activities include burning, ground work, planting, spraying, fertilizing, irrigating, and maintaining equipment. You do not have any employees however where you do not have the means or capacity to complete work, you engage contractors as is the industry standard. You use equipment typically involved in that type of farming such as tractors and related implements, pumps and irrigation equipment. There is also a separate shed for storage of equipment and chemical and fertilisers as is required to avoid any hazardous environmental impacts. You have a business plan and are a member of the local organisation for your industry. You keep both financial and other general records as required by the relevant state government authorities. You have entered into agreements with the state and regional authorities which performs marketing and pricing and makes payments in accordance with the relevant payment model which has been nominated. You have also entered into a supply agreement for the relevant financial year. The agreement is for the entire harvest to go to one of the authorities who will then on-sell to the second authority. Entering into agreements with the relevant authorities are the only way that the crops can be sold. It is an industry standard and is the same for each farmer within the region. The agreement with the regional body is for guaranteed sales upon supply of the entire crop in the relevant financial year. They in turn sell it on to the state authority. The state authority performs marketing and pricing activities for the farmers and makes payments in accordance with the relevant payment model the farmer has nominated. The 20XX harvesting started towards the end of the 20XX financial year however the harvesting contractors you engaged were not able to cut the crop until early in the next financial year. Therefore, the proceeds of the crop will not be receipted until the following financial year. The farm is run on in the same or similar manner to that of the ordinary trade in the industry and is planned, organised and carried on in a businesslike manner which is directed at making a profit.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 995-1(1)