Private ruling: Non-commercial losses
Published: March 2012
Ruling period: Year ended 30 June 2006 | Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2005

Ruling: Q1: Are you carrying out a primary production business? | A1: 

Relevant facts and circumstances: In the 20XX-XX financial years you purchased a farm. In the 20XX-XX financial year you: · brought the paddocks and crop up to satisfactory standard by intensive fertilisation · employed a contractor to ensure that this was done in a suitable manner and that the fertilizer was spread evenly · had the pump repaired and purchased analytical equipment for crop analysis · registered a stock brand and electrified the paddocks and put up fencing for the stock · purchased stock and made your own stock feed which was bailed by a contractor. In the 20XX-XX financial year you: · had major repairs on the tractor and started to build a house to live in n the farm · sold the stock and bought an additional stock · planted a large area for stock feed using a contractor which was cut and bailed by another contractor. · performed soil analysis on all of the paddocks. In the 20XX-XX financial year you sold the stock and purchased additional stock. At this stage it was decided that the crop was not going to be economically viable and its cultivation ceased. You investigated planting trees. You performed a net present value analysis clearly showed that they could make a good profit out of the tree farming. In the 2009-10 financial year you employed a consultant to evaluate the proposition and assist in the planning and execution of developing a commercial plantation. This was achieved and the necessary permits were obtained from the shire by the company. Seedlings were purchased and a company employed to spray the paddocks prior to planting. Trees were planted and would be ready to harvest in 10 years time. You also sold stock that year. In the 2010-11 financial year, you started a stock breeding program for other stock.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Detailed Reasoning - Farming activities: Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes. 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 - Forestry operations: Income Tax Ruling TR 95/6 discusses primary production and forestry. Paragraph 4 of TR95/6 states a person who is engaged in 'forest operations' is a primary producer for income tax purposes if those forestry activities constitute the carrying on of a business. Paragraph 5 of TR 95/6 defines 'forest operations' in terms of section 6(1) of the Income Tax Assessment Act 1936 (ITAA36) as: the planting or tending in a plantation or forest of trees intended for felling; or the felling of trees in a plantation or forest. Paragraph 87 of TR 95/6 states in determining whether particular activities constitute the carrying on of a business, courts and tribunals have considered the following indicators to be relevant: · whether the activities have a significant commercial purpose · the scale of the activities (a person may carry on a business even though they do so in a small way) · the nature of the activities, particularly whether they have the purpose of profit making (however, profit making in a particular year is not essential) · repetition and regularity of the activities · whether the activities are organised in a business-like manner · volume of the operations and the amount of the capital employed · whether the activities may properly be described as the pursuit of a hobby or recreation · the degree of control held by the person over the development and maintenance of the land. | Detailed Reasoning - Application to your circumstances: Given a consideration of the whole circumstances, it is accepted that your activities constitute a primary production business. To reach this conclusion we applied the relevant indicators in TR 97/11 and TR 95/6.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.