Private ruling: Primary Production
Date of advice: 10 March 2022
Published: May 2022
Ruling period: x XX 20XX to y YY 20YY
Date scheme commenced: x XX 20XX

Ruling: Q1: Is the Applicant carrying on a primary production business as defined by subsection 995-1(1) of the Income Tax Assessment Act 1997 (' ITAA 1997 ') for the period x XX 20XX to y YY 20YY? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling. 1. The Applicant of XYZ was born on z ZZ 19ZZ. The Farm 2. The farming property (the 'property') is situated in XYZ with the nearest major township being Town A. 3. The property consists of arable land and is divided into numerous paddocks with fences and gates. 4. The property also has several irrigation channel infrastructure assets and water for the property is sourced through the nearby irrigation system. 5. The soils across the property are generally of good quality and support summer fodder crops, cereal crops, annual and perennial pastures. 6. Prior to the Applicant's involvement on the farm, his relatives farmed the land, operating a mixed farming operation. Farming history associated with the Taxpayer 7. The Applicant and his immediate family have been running a cattle and crop farming business since 19XX. 8. The Applicant grew up on the farm and was immersed in the family farming business from a young age. Growing up, the Applicant was exposed to the day-to-day farming operations. 9. The Applicant's relative educated him in the practices of farming cattle, sheep and crops including integral matters such as crop rotation, irrigation practices, animal breeding and breeding stock selection. 10. The Applicant has operated the farming business since inception as a sole trader. The Applicant has had an Australian Business Number (ABN) registered since YY 20XY and has been registered for Goods and Services Tax (GST) since 20XY. The Applicant completes Business Activity Statement (BAS) lodgements on a quarterly basis. 11. The plains are used for the various crops and feed and fodder crops. 12. While not all the crops are grown simultaneously through rotation, the Applicant grows, harvests and sells hay and various animal feed products on the commercial market through local vendors at a profit. 13. The Applicant also retains some of the fodder and hay for use on the farm to support the beef cattle fattening and the breeding program. 14. The cattle farming is multifaceted and includes a breeding program. The farmland that is used for cattle farming is adequately fenced to ensure good stock control and management. 15. The Applicant breeds from a consistent stock of breeding cattle however, from time-to-time also purchases additional breeding stock from the local livestock auctions. To facilitate the purchase and sale of cattle stock and bulls (as needed), the Applicant attends the local saleyards. 16. The Applicant has maintained dialogue for numerous years with the local stock and station agent team members and neighbouring farming families regarding upcoming auctions and bull/breeding stock quality. 17. The Applicant raises calves and sells them to the local stock agent as vealers. Some cattle as mentioned above are not sold as vealers and are kept and maintained for the ongoing breeding program. 18. Generally, the price of cattle and vealers varies so profits have varied year on year. In each year of operation, the Applicant has sustained activities capable of producing a profit, but in some periods has been impacted severely by drought conditions. 19. To sustain the crop and cattle farming, the Applicant pays for water rights each year for the property. There is an annual access fee for the water rights (the right to draw water) as well as charges for water consumption. A failure to pay the annual access fee for the water rights means there is no ability to draw water and a potential loss of water rights in future years due to the limited amount of water rights available. 20. The Applicant incurs a $xyz fee each year to maintain the water rights access which is necessary to ensure irrigation goes down the channels and the flood irrigation can establish the crops and grow feed for the cattle across the property. 21. In years when the water rights were able to be utilised, on average, the consumption cost associated with the water rights agreement was approximately $xyz. 22. During periods of severe drought conditions, \the Applicant's cattle and crops business was impacted significantly. As a supplementary income stream, during the more financially challenging years there was minor agistment on the property to at least generate some form of income. 23. The Applicant maintained business various records over the years including stock books, invoices and an informal business plan which documents a broad description of the cattle and crop business, sections of the property suitable for cattle/crop farming and the self-funded nature of the enterprise. 24. Through practices taught by his relatives, the Applicant maintains a farm management plan (separate to the more broad business plan) regarding all aspects of the farming operation. This includes matters such as crop rotations across the paddocks, cattle prices and input costs, irrigation strategy and water usage, breeder and bull replenishment and pasture management. 25. The Applicant has been lodging Income Tax Returns for the cattle trading and farming on the property. In the past x financial years (years ending 30 June 20XX to 30 June 20ZZ), the property has operated at a loss for some of those x years. Information provided 26. You have provided a number of documents containing detailed information in relation to the Applicant's application for a private binding ruling, including: • Private Binding Ruling ('PBR') Application, dated x YY 20ZZ • Document with background facts 27. We have referred to the relevant information within these documents in applying the relevant tests to your circumstances. Assumption(s) Not applicable.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1(1) Further issues for you to consider | Not applicable.

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated. The Applicant is carrying on a primary production business as defined by subsection 995-1(1) of the Income Tax Assessment Act 1997 (' ITAA 1997 ') for the period x XX 20XX to y YY 20YY. | Detailed Reasoning - DETAILED REASONING: 28. Subdivision 995-1(1) of the ITAA 1997 defines a 'primary production business' as: '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 themor 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. 29. Paragraph 9 of Taxation Ruling TR 97/11: 'Income tax: am I carrying on a business of primary production' ('TR 97/11') provides that: A person is carrying on a business of primary production for the purposes of the ITAA 1997 if: a. he/she produces 'primary production', as defined in subsection 995-1(1) of the ITAA 1997; and b. that activity amounts to the carrying on of a business. 30. Subsection 995-1(1) of the ITAA 1997 defines 'business' as: ' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. ' 31. The Commissioner notes in paragraphs 15 and 16 of TR 97/11 as follows: " 15. We stress that no one indicator is decisive (Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922), and there is often a significant overlap of these indicators. For example, an intention to make a profit will often motivate a person to carry out the activity in a systematic and organised way, so that the costs are kept down, and the production and the price obtained for the produce are increased." "16. The indicators must be considered in combination and as a whole. 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." 32. Paragraph 23 of TR 97/11 states that there are no hard and fast rules for determining whether a taxpayer's activities amount to the carrying on of a business of primary production. The facts of each case must be examined. In Martin at CLR 474; AITR 551 Webb J said: 'The test is both subjective and objective: it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and, as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained.' 33. Paragraph 24 of TR 97/11 states that the nature of the activity, the taxpayer's intention and the method of operation help determine whether a business of primary production is being carried on. Many of the relevant indicators are stated in the decision of the Full Federal Court in Ferguson . Bowen CJ and Franki J said in their joint judgment at FLR 314; ATC 4264-4265; ATR 876-877: 'Section 6 of the Income Tax Assessment Act [1936] defines 'business', stating that it includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. This does not afford much assistance in the present case. It is necessary to turn to the cases. There are many elements to be considered. The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profit-making in a particular income year does not appear to be essential. Certainly, it may be held a person is carrying on business notwithstanding his profit is small or even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin, and even isolated activities may in the circumstances be held to be the commencement of carrying on business. Again, organization of activities in a businesslike manner, the keeping of books, records and the use of system may all serve to indicate that a business is being carried on. The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business, even though his operations are fairly substantial.' 34. Whilst each case might turn on its own particular facts, the determination of the question whether a business of primary production is being carried on is generally the result of a process of weighing all the relevant indicators. Therefore, although it is not possible to lay down any conclusive test of whether a business of primary production is or is not being carried on, the indicators outlined in Paragraph 13 of TR 97/11 provide general guidance. 35. Paragraph 25 of TR 97/11 states that in Evans , Hill J agreed that no one indicator could determine whether a business is being carried on. He said at ATC 4555; ATR 939: 'The question of whether a particular activity constitutes a business is often a difficult one involving as it does questions of fact and degree. Although both parties referred me to comments made in decided cases, each of the cases depends upon its own facts and in the ultimate is unhelpful in the resolution of some other and different fact situation.' 36. Paragraph 25 of TR 97/11 continues that there is no one factor that is decisive of whether a particular activity constitutes a business. As Jessel M.R. said in the famous dictum in Ericksen v. Last (1881) 8 Q.B. 414 at p.416: 'There is not, I think, any principle of law which lays down what carrying on trade is. There are a multitude of things which together make up the carrying on of trade.' 37. Paragraph 25 of TR 97/11 continues that profit motive ( I.R. Commrs v. Incorporated Council of Law Reporting (1888) 22 Q.B. 279), scale of activity, whether ordinary commercial principles are applied characteristic of the line of business in which the venture is carried on ( I.R. Commrs v. Livingston (1927) 11 T.C. 538), repetition and a permanent character, continuity ( Hope v. Bathurst City Council 80 ATC 4386 at p. 4390; (1980) 144 C.L.R. 1 at p. 9; Ferguson v. FC of T 79 ATC 4261 at p. 4264), and system ( Newton v. Pyke (1908) 25 T.L.R. 127) are all indicia to be considered as a whole, although the absence of any one will not necessarily result in the conclusion that no business is carried on. 38. Paragraph 26 of TR 97/11 states that from the above judgements, it is clear that the relevant indicators of whether a business of primary production is being carried on by a taxpayer are: • does the activity have a significant commercial purpose or character? • does the taxpayer have more than a mere intention to engage in business? • is there an intention to make a profit or a genuine belief that a profit will be made? Will the activity be profitable? • is there repetition and regularity in the activity? ie. how often is the activity engaged in? How much time does the taxpayer spend on the activity? • is the activity of the same kind and carried on in a similar way to that of the ordinary trade? • is the activity organised in a businesslike manner? • what is the size or scale of the activity? • is the activity better described as a hobby, a form of recreation or a sporting activity? 39. Regarding the application of TR 97/11, the Commissioner looks to several factors and indicators to reach a conclusion on the discrete fact pattern that determines if you are 'carrying on a business of primary production' as distinct from a what is defined as a 'hobby'. Specifically, paragraph 25 of TR 97/11 states: '....all indicia [are] to be considered as a whole, although the absence of any one will not necessarily result in the conclusion that no business is carried on.' 40. Further, paragraph 14 of TR 97/11 states: 'A taxpayer does not need to derive all his/her income from the primary production activity. The taxpayer may also be employed in some other occupation or profession. What is important is that the taxpayer's primary production activity amounts to the carrying on of a business. This activity is considered separately from any other employment or business carried on by the taxpayer...' 41. TR 97/11 supports the notion that the derivation of a secondary source of income (ie. employment income) is not the sole determinant factor when arriving at the conclusion that a taxpayer is not carrying on a business. 42. The eight relevant indicators of whether a business of primary production is being carried on by a taxpayer need to be considered. | Detailed Reasoning - Significant commercial purpose or character: 43. Paragraph 29 of TR 97/11 states that the phrase 'significant commercial purpose' is referred to by Walsh J in Thomas v. FC of T 72 ATC 4094; (1972) 3 ATR 165, and discussed further by Gibbs CJ and Stephen J in Hope . The 'significant commercial purpose or character' indicator is closely linked to the other indicators and is a generalisation drawn from the interaction of the other indicators. It is particularly linked to the size and scale of activity, the repetition and regularity of activity and the profit indicators. 44. A way of establishing that there is a 'significant commercial purpose or character' is to compare the activities with those of a taxpayer who is carrying on a similar activity that is a business. Any knowledge, previous experience or skill of the taxpayer in the activity, and any advice taken by the taxpayer in the conduct of the business should also be considered but are not necessarily determinative. | Detailed Reasoning - The intention of the taxpayer: 45. Paragraph 39 of TR 97/11 states that the intention of the taxpayer in engaging in the activity is a relevant indicator ( Thomas ). However, a mere intention to carry on a business is not enough. There must be activity. Brennan J in Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497 said that: 'The carrying on of a business is not a matter merely of intention. It is a matter of activity.... At the end of the day, the extent of activity determines whether the business is being carried on. That is a question of fact and degree.' 46. Paragraph 40 of TR 97/11 states that this indicator is particularly related to: • whether the activity is preparatory or preliminary to the ultimate activity; • whether there is an intention to make a profit; and • whether the activity is better described as a hobby or the pursuit of a recreational or sporting activity. | Detailed Reasoning - Prospect of profit: 47. As noted in Paragraph 47 of TR 97/11, the Commissioner considers this indicator to be a very important one in determining whether a business of primary production is being carried on by a taxpayer. A number of cases have looked at this indicator. 48. In Hope at CLR 8-9; ATC 4390; ATR 236, Mason J indicated that the carrying on of a business is usually such that the activities are: '... engaged in for the purpose of profit on a continuous and repetitive basis.' 49. In Smith v. Anderson (1880) 15 Ch D 247 at 258, Jessell MR said that: '... anything which occupies the time and attention and labour of a man for the purpose of profit is business.' 50. In Case H11 76 ATC 59 at 61; 20 CTBR (NS) Case 65 at 603, the Chairman of Board of Review No 1 said: 'In determining whether a business is being carried on it is, in my view, proper to consider, as one of the elements, whether the activities under consideration could ever result in a profit...' 51. Paragraph 48 of TR 97/11 states that the Commissioner believes it is important that the taxpayer is able to show how the activity can make a profit. Stronger evidence of an intention to make a profit occurs when the taxpayer has conducted research into his/her proposed activity, consulted experts or received advice on the running of the activity and the profitability of it before setting up the business. 52. This was the situation in FC of T v. JR Walker 85 ATC 4179; (1985) 16 ATR 331. However, it is not necessary for the primary production activities to make a profit in every year of income in order to classify the activities as a business of primary production. Thus, a taxpayer may be carrying on a business of primary production even though he/she is making a small profit or a loss in any given year of income. 53. Paragraph 49 of TR 97/11 states that the situation may arise where a taxpayer is carrying on a business and has an intention to make a profit, but the objective evidence is such that a profit is unlikely to be made in the short term. Bowen CJ and Franki J in Ferguson at ATC 4264; ATR 876 stated that: '... an immediate purpose of profit-making in a particular income year does not appear to be essential...'. 54. Thus, where short term losses are expected, it may be that a business is nevertheless being carried on ( Tweddle v. FC of T (1942) 7 ATD 186; (1942) 2 AITR 360). 55. Paragraph 50 of TR 97/11 states that where an activity is carried on and the objective evidence is that it is unlikely a profit will ever be made, this fact in itself does not necessarily mean that a business is not being carried on, if the taxpayer believes that the activity will become profitable. As Walsh J said in Thomas at ATC 4100; ATR 171: 'It is not in doubt that he made mistakes. But many persons carry on a business for the competent conduct of which they have not previously acquired much knowledge or experience.' | Detailed Reasoning - Repetition and regularity in the activity: 56. Paragraph 55 of TR 97/11 states that it is often a feature of a business that similar sorts of activities are repeated on a regular basis. The repetition of activities by the same person over a period of time on a regular basis helps to determine whether there is the 'carrying on' of a business. For example, in Hope the 'transactions were entered into on a continuous and repetitive basis', such that the taxpayer's activities 'manifested the essential characteristics required of a business'. 57. Paragraph 56 of TR 97/11 states that the taxpayer should undertake at least the minimum activities necessary to maintain a commercial quantity and quality of product for sale. It may be that there are no minimum levels for this activity. Where there are minimum levels necessary for this activity which the taxpayer fails to maintain, it may be that for a period the taxpayer has ceased to carry on a business of primary production. | Detailed Reasoning - Is the activity of the same kind and carried on in a manner that is characteristic of the industry?: 58. Paragraph 63 of TR 97/11 states that an activity is more likely to be a business when it is carried on in a manner similar to that in which other participants in the same industry carry on their activities. Lord Clyde in IR Commissioners v. Livingston at TC 542 said that: '... the test, which must be used to determine whether a venture... is, or is not, "in the nature of trade", is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made.' 59. In considering this indicator the following factors might be compared with the characteristics of others engaged in the same type of business: • the volume of sales. If there is a small number of sales, it is less likely that a business is being carried on. The volume of sales should be capable of producing a profit at some time. However, allowance is made for droughts, fires and other uncontrollable events which may affect the volume of sales. It is also accepted that in the early stages of an activity, sales may be low; • the types of customers the taxpayer sells his/her product to - wholesalers, retailers, the public at large, or friends or relatives - and the manner in which this marketing takes place; • the sort of expenses incurred by the taxpayer; • the amount invested in capital items; • previous experience of the taxpayer. A taxpayer who does not have any knowledge or experience may be expected to have sought advice from experts. However, it is recognised that a taxpayer may be a pioneer in the industry. The taxpayer may have conducted research into the activity, decided that the traditional approach is wrong. He/she may be trying to conduct the activity with a view to profit in a new but businesslike way; and • the activity should also be compared with that of a keen amateur. The sales of a keen amateur may only be a way of obtaining 'new' funds to continue with the personal interest. | Detailed Reasoning - Organisation in a businesslike manner and the use of system: 60. Paragraph 68 of TR 97/11 states that in Newton v. Pyke the Court suggested that business should be conducted systematically. A business is characteristically carried on in a systematic and organised manner rather than on an ad hoc basis. An activity should generally conform with ordinary commercial principles to amount to the carrying on of a business. 61. In Ferguson the Full Federal Court was influenced by the systematic and organised nature of the taxpayer's activities. Fisher J said at FLR 324-325; ATC 4271; ATR 884: '... the venture as a whole had a commercial flavour, was conducted systematically and,... in a business like manner. It could not be said that there was anything haphazard or disorganised in the way in which he carried out the activity.' 62. In JR Walker Ryan J was satisfied, at ATC 4182; ATR 335, that the taxpayer was in the business of goat breeding as he had 'organised his activities in a business-like way through the keeping of books of account'. 63. Paragraph 70 of TR 97/11 states that the weight that is attached to this indicator will depend on the facts of the situation and a taxpayer may still carry on a business of primary production despite having poor organisational skills. | Detailed Reasoning - Size or scale of the activity: 64. Paragraph 77 of TR 97/11 states that the larger the scale of the activity the more likely it will be that the taxpayer is carrying on a business of primary production. However, this is not always the case. The size or scale of the activity is not a determinative test, and a person may carry on a business though in a small way ( Thomas at ATC 4099; ATR 171). 65. The case of JR Walker involved five Angora goats, two of which died. Whilst the scale was small, the court held that a goat breeding business was being carried on because there was a profit making purpose and repetition and regularity in the taxpayer's activities. Research, based on authenticated sources, showed that a profit could be made from the significant capital allocated to breeding stock. 66. In JR Walker , Ryan J said at ATC 4182; ATR 334: '... the respondent's activities had the purpose of profit making.... There was also repetition and regularity in his activities.... The activities of the taxpayer were limited but... he maintained communications with the expert, and he tried to make himself informed about market conditions through membership of the Angora Breed Society and reading publications... He organised his activities in a business-like way through the keeping of books of account...' 67. Paragraph 80 of TR 97/11 states that the scale of the activities may be small but still result in more produce than is required for the taxpayer's own domestic needs. Where this is so, and there is also an intent to profit from the activities and a reasonable expectation of doing so, a business may be carried on despite the scale. 68. The smaller the scale of the activity the more important the other indicators become when deciding whether a taxpayer is carrying on a business of primary production. | Detailed Reasoning - Hobby, a form of recreation or a sporting activity: 69. Paragraph 86 of TR 97/11 states that the pursuit of a hobby is not the carrying on of a business for taxation purposes. Money derived from the pursuit of a hobby is not regarded as income and therefore is not assessable. As was said in Ferguson at ATC 4265; ATR 877: '... if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business, even though his operations are fairly substantial.' (emphasis added) | Detailed Reasoning - APPLICATION TO YOUR CIRCUMSTANCES: 70. Firstly, it is necessary to determine if the Applicant meets any one of the eight definitions of 'primary production business' listed under subsection 995-1(1) of the ITAA 1997 at (a) to (h), before working through the relevant indicators of whether a business of primary production is being carried on by a taxpayer, as listed in Paragraph 37 above (as outlined in Paragraph 26 of TR 97/11). 71. On reviewing the information provided in this private ruling application, it is evident that (a) and (b) listed in Subdivision 995-1(1) of the ITAA 1997 describe the activities carried on by the Applicant on the property, ie. the commercial activities of crop and cattle farming, and so a determination is to be made whether the Applicant therefore conducts a 'primary production business'. 72. Subdivision 995-1(1) of the ITAA 1997 states that: '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 73. From the background facts provided, the Applicant and his family have been running a cattle and crop farming business since 19XY. For the past x years, the Applicant has cultivated, propagated and farmed various crops for feed and fodder crops. The farmland is separated into discrete paddocks to accommodate for the different farming operations. 74. While not all the crops are grown simultaneously through rotation, the Applicant grows, harvests and sells various animal feed products on the commercial market through local vendors at a profit. The Applicant also retains some of the fodder and hay for use on the farm to support the beef cattle fattening and the breeding program. 75. Subdivision 995-1(1) of the ITAA 1997 states that: 'you carry on a primary production business if you carry on a business of: (b) maintaining animals for the purpose of selling themor their bodily produce (including natural increase) 76. From the background facts provided, the Applicant and his family have been running a cattle and crop farming business since 19XX. For the past x years, the Applicant has maintained a steady head of cattle, engaged in cattle farming, which is multifaceted and includes a breeding program. The breeding program is systematic, organised and involves sustained effort in relation to the subdivision of the paddocks and fencing requirements. The farmland that is used for cattle farming is adequately fenced to ensure good stock control and management. 77. The Applicant breeds from a consistent stock of breeding cattle however, from time-to-time also purchases additional breeding stock from the local livestock auctions. To facilitate the purchase and sale of cattle stock and bulls, the Applicant attends the local saleyards. 78. The Applicant raises calves and sells them to the local stock agent as vealers. Some cattle as mentioned above are not sold as vealers and are kept and maintained for the ongoing breeding program. 79. Generally, the price of cattle and vealers varies so profits have varied year on year. In each year of operation, the Applicant has sustained activities capable of producing a profit, but in some periods has been impacted severely by drought conditions. 80. Therefore, the Applicant is carrying on the activities that are listed above and are described in (a) and (b) of the definition of a primary production business (see Paragraph 27 above). 81. Secondly, it is necessary to determine if the Applicant satisfies the relevant indicators of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11 (see Paragraph 37 above). | Detailed Reasoning - Significant commercial purpose or character: 82. From the facts provided by the taxpayer, it is clear that the activities of the Applicant on the farm have a significant commercial purpose or character. This indicator is particularly linked to the size and scale of activity, the repetition and regularity of activity and the profit indicators. 83. The Applicant has been operating the commercial activities of crop and cattle farming for x years. It is clear from the length of time and the capital invested by the Applicant that this extends well beyond that of a 'hobby' farmer. A clear demonstrative example of the capital outlay is the securing of yearly water rights for irrigation of the channels needed to sustain the crops and grow feed for the cattle which is paid even in absence of any guarantee of water supply. 84. Importantly, if not paid, water rights will be lost which would be detrimental to the ongoing viability of the farm's output and therefore profitability. 85. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - The intention of the taxpayer: 86. From the facts provided by the taxpayer, it is clear that the activities of the Applicant over the past x years have far exceeded the threshold of an 'intention to engage in business'. This indicator requires more than a mere intention to carry on a business. There must be activity. 87. Over the past x years, the Applicant has engaged in numerous ongoing activities on the property, including farming cattle, sheep and crops, as well as integral matters such as crop rotation, irrigation practices, animal breeding and breeding stock selection. 88. The Applicant maintains a farm management plan regarding all aspects of the farming operation. This includes matters such crop rotations across the paddocks, cattle prices and input costs, irrigation strategy and water usage, breeder and bull replenishment and pasture management. 89. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - Prospect of profit: 90. From the facts provided, it is clear that the Applicant has established a clear intention to derive profits from the sale of crops and vealer cattle over the past x years. The output by way of vealer and crop produce far exceeds the Applicant's personal needs. 91. In the past x financial years, the property has operated at a loss for a number of those x years. The Applicant aims to derive profits from the farming activities on the property. The Applicant stays well abreast of the market conditions and sells the crops on the commercial market and more specifically, makes use of a stock agent in relation to the vealer cattle sold at the local sale yards. 92. Generally, the price of cattle and vealers varies so profits have varied year on year. In each year of operation, the Applicant has sustained activities capable of producing a profit, but in some periods has been impacted severely by drought conditions. 93. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - Repetition and regularity in the activity: 94. From the facts provided, it is clear that the Applicant has engaged in repetition and regularity in the farming activity on the property for the past x years. 95. The plains on the property are used for feed and fodder crops. 96. While not all the crops are grown simultaneously through rotation, the Applicant grows, harvests and sells various animal feed products on the commercial market through local vendors at a profit. The growing of these crops is a regular and repetitive activity. 97. The Applicant also retains some of the fodder and hay for use on the farm to support the beef cattle fattening and the breeding program, which is an ongoing, regular and repetitive activity. 98. The Applicant also employs casual contractors regularly for seeding and stripping the crops as and when required based on the seasonal nature of the crops. This also extends to additional hands required for cattle breeding and drafting on a regular basis. 99. The property continued to survive and operate through adverse drought conditions which speaks to the permeance of the property's tenure. During periods of extreme drought, agistment income was needed to supplement the requirement to destock, however the agistment on the property has not been consistent and has only been required for discrete and brief periods of financial hardship. 100. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - Is the activity of the same kind and carried on in a manner that is characteristic of the industry?: 101. From the facts provided, it is clear that the Applicant is engaged in the same type of business as other crop and cattle farmers. 102. This is evidenced by the volume of sales made by the Applicant for the past x years. Apart from years of drought, the Applicant has been able to derive a profit from the farming activities. In the past x financial years, the property has operated at a loss for a number of those x years. 103. The Applicant deals on a regular basis with a variety of people engaged in this industry. The Applicant deals with staff at livestock auctions to facilitate the purchase and sale of cattle stock and bulls (as needed) and attends the local saleyards regularly. 104. The previous experience of the Applicant in the farming activities is evidenced by the long term involvement in these practices for x years. 105. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - Organisation in a businesslike manner and the use of system: 106. The Applicant has operated the farming business for the past x years as a sole trader. The Applicant has had an Australian Business Number (ABN) registered since XX 20XX and has been registered for Goods and Services Tax (GST) since 20XX. 107. The Applicant maintains financial business records and completes Business Activity Statement (BAS) lodgements on a quarterly basis. 108. The Applicant also keeps stock ledgers, invoices and breeding records. While financial records are not indicative of a business in isolation, the systematic manner in which the Applicant accounted for his operations and broadly outlined them in an informal business plan creates a practical distinction between an activity that is organised, planned and business-like and one which may be viewed as recreational or a hobby. 109. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - Size and scale of the activity: 110. From the facts provided, it is noted that the Applicant maintains active farm pastures on a large scale on a large property. The size and scale of the substantial farm pastures requires significant irrigation and paid farmhand assistance for day-to-day operations. 111. On a regular basis, the Applicant engages the assistance of external paid contractors for crop stripping based on the seasonal nature of the crops which clearly demonstrates that the size of the activity is substantial. 112. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - Hobby, a form of recreation or a sporting activity: 113. Following on from the previous relevant indicators, it is not appropriate to describe the activities of the Applicant as a hobby, a form of recreation or a sporting activity. 114. From the facts provided, it appears that the Applicant satisfies this relevant indicator of whether a business of primary production is being carried on by a taxpayer as described in Paragraph 26 of TR 97/11. | Detailed Reasoning - CONCLUSION: The Applicant is carrying on a primary production business pursuant to subsection 995-1(1) of the Income Tax Assessment Act 1997 (' ITAA 1997 ') for the period x XX 20XX to y YY 20YY.

Evans v. FC of Taxation (1989) ATC 4540 | FC of Taxation v. JR Walker (1985) ATC 4179 | Ferguson v. FC of Taxation (1979) 37 FLR 310 | Hope v. Bathurst City Council (1980) ATC 4386 | Inglis v. FC of Taxation (1980) ATC 4001 | Martin v. FC of Taxation (1953) 90 CLR | Thomas v. FC of Taxation (1972) ATC 4094 | Tweddle v. FC of Taxation (1942) 7 ATD 186