Private ruling: Primary production activity
Published: November 2014

Ruling: Q1: Are you carrying on a primary production business in the 2014-15 financial year? | A1: Yes.


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

Reasons for decision: Summary: Business is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'. A primary production business is defined in section 995-1 of the ITAA 1997 to include a business of maintaining animals for the purpose of selling them. 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 Income tax: am I carrying on a business of primary production? outlines some factors that indicate whether or not a business of primary production is being carried on. No individual factor is determinative, but should be weighed up in conjunction with the other 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. TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case, and no one indicator will be decisive ( Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922). In your case, the activities have a commercial purpose with an intention to produce a profit. Considerable time is spent on the various activities each week and substantial capital has been invested. Although you have not derived any income to date from your farming activities, there is an intention to make a profit and the activities are carried out in a business-like manner. After weighing up the relative business indicators and objective facts surrounding your case it is considered that you are carrying on a primary production business for taxation purposes.

Relevant facts: You purchased a farm during the current financial year. | The property was already set up as a working farm. You purchased most of the existing animals. | You purchased most of the plant and equipment to enable you to continue to run the farm as a commercial primary producer. | This is your full time income earning activity and is expected to remain the major source of your income for some time. | You purchased more animals recently. | You are currently doing some fencing repairs and weed control on the property so that the property is more effective in generating income. | You are currently developing your business plan for your profit making activities.