Private ruling: Am I in the business of breeding animals
Published: December 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Would the proposed partnership's breeding activity for the year ended 30 June 2014 be considered a business for income tax purposes? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: The activity is not considered to be a business for tax purposes in the 2013-14 income year. It is considered that the activity is still in a preparatory stage prior to the commencement of a possible business. The most important aspect of a breeding activity is the acquisition of quality livestock, to produce a sufficient number of offsping for sale, to have a potential to make a profit. Your breeding business activity cannot be said to have commenced until suitable breeding animals are available. It is considered that you are not conducting the breeding activity at a commercial scale with the one animal that you have previously raced without success. You are in the preliminary stage of establishing whether this animal can produce quality offspring and also establishing your name as a potential breeder. You have stated that you have limited goodwill and will need to race the majority of the offspring in order to build this goodwill. You are entering into an activity of racing the offspring to establish the credentials of yourself and your breeding stock. | Detailed Reasoning - Carrying on a business: We believe that when a business activity commences is like the question of whether a business is being carried on at all and depends on the large or general impression gained (Martin v. FC of T (1953) 90CLR 470 at 474; 5 AITR 548 at 551). For a business activity to have commenced a person must have: · made a decision to commence the business activity; · acquired the minimum level of 'business assets' to allow that activity to be carried on; and · actually commenced business operations. The term business is defined in section 995-1 and includes any profession, trade, employment, vocation or calling but does not include occupation as an employee. The definition does not provide guidance to determine whether the taxpayer's activities amount to carrying on a business, rather case law is considered. Taxation Ruling TR 97/11 addresses the indicators relevant in determining whether a business is being conducted. These indicators are considered in combination and a decision is made based on the overall impression which is gained. The courts have indicated the following indicators are relevant; · Activity has a significant commercial purpose or character · Must be more than just an intention to engage in business · A purpose of profit as well as a prospect of profit · Repetition and regularity of the activity · Activity carried on in a similar manner to others in the industry · Activity planned, organised and conducted in a business like manner · Size, scale and permanency of activity The sole purpose of the proposed business activity is to breed and sell animals to make a profit. Your budget forecasts for a number of years show total expenses greater than your potential sales income. Increase in income is dependant on the racing success of the offspring. The racing of animals in generally not considered to be a business activity. Based on the facts above, the general impression gained, is that a business activity of breeding animals will not have commenced before the 2015-16 income year. This status needs to be reviewed on an annual basis and the relevant indicators in determining whether a business is being carried on applied to your facts.

Relevant facts: You provided a comprehensive business plan setting out each of the steps in the process and forecast budgets for your activity. | You intend to breed with the one animal that you already own. | You will have to develop the goodwill of your activity over a period of time. This will be done by racing some of the offspring. | You will meet all the requirements of the industry.