Private ruling: Primary production
Date of advice: 8 June 2018
Published: September 2018
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you carrying on a primary production business? | A1: Yes.

Relevant facts and circumstances: You purchase live fish directly from the fishermen in your state. You then maintain them by keeping them in large water tanks and feeding them daily. Your holding tanks capacity is at a commercial scale. Your intent is market driven. The equipment was purchased with the intent of carrying on this activity, and the farming of the fish is both regular and ongoing. You hold the fish for a period of time before sale, and the decisive factors regarding the timing of sales are both the market price and market supply and demand. The fish are held for market price rather than growth. The stock is sold for profit, and you are responsible for transporting the fish after sale. You have a licence to hold the stock. The vast majority of your income is derived from these live fish sales.

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

Reasons for decision: Detailed Reasoning - Definition of primary production business: ‘Primary production business’ is defined in section 995-1 of the ITAA 1997: primary production business : you carry on a primary production business if you carry on a * business of: (a) cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment; or (b) maintaining animals for the purpose of selling them or their bodily produce (including natural increase); or (c) manufacturing dairy produce from raw material that you produced; or (d) conducting operations relating directly to taking or catching fish, turtles, dugong, bêche-de-mer, crustaceans or aquatic molluscs; or (e) conducting operations relating directly to taking or culturing pearls or pearl shell; or (f) planting or tending trees in a plantation or forest that are intended to be felled; or (g) felling trees in a plantation or forest; or (h) transporting trees, or parts of trees, that you felled in a plantation or forest to the place: (i) where they are first to be milled or processed; or (ii) from which they are to be transported to the place where they are first to be milled or processed. 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 incorporates the general 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. 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 - Applying the indicators to your circumstances: In your case, the activity has a significant commercial purpose or character. You are maintaining animals for the purpose of selling them, as you house and feed the fish on a commercial scale, and following their sale, you are responsible for their transport. Based on the information you have provided, we consider that your activity has the necessary characteristics of a Primary Production business for taxation purposes.