Private ruling: Primary production business
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the entity in the business of primary production? | A1: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision: Summary: In part, subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines primary production as cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment or maintaining animals for the purpose of selling them or their bodily produce (including natural increase). In your case all your activities meet the definition of primary production. It must now be determined if you are in business. Taxation Ruling TR 97/11 discusses the issues to be considered in determining whether you are carrying on a business of primary production. Paragraph 13 of TR 97/11 lists the following indicators as relevant: · 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 repetition and regularity of the activity · whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business · whether the activity is planned, organised and carried out in a business like manner such that it is directed at making a profit · the size, scale and permanency of the activity · whether the activity is better described as a hobby, a form of recreation or a sporting activity · whether the activity has a significant commercial purpose or character; this indictor comprises many aspects of the other indicators. Other indicators which support the main indicators include: · whether records are kept · whether a business plan exists · whether there has been commercial sales of the product · the taxpayer's knowledge or skill. You have, over time built it up this activity into an operating farm. You have also increased the number of animals. You have planted and harvested a crop. You have demonstrated that there is repetition and regularity in your activities as you have grown and sold animals over the past few years. Your activities are of the same kind as carried on in the farming industry, albeit on a smaller scale. You have gained experience since you have owned the farm. You are organised in a business-like manner in that you have a business plan and you have done research on your activities. The size and scale of the activity is carried on in a small way. Your activities are more substantial than if you were pursuing a hobby. You have researched how you are going to sell your products and have projected that your activities should make a profit in the near future. It is considered that the entity is in the business of primary production.

Relevant facts: The entity purchased a property. | The entity raised animals and grew a crop on the property. | The activity was, in the past, operated as a hobby farm. | You have full time employment elsewhere. | You have a business plan and intend to make a profit in a short period of time.