Private ruling: Am I in business?
Published: August 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you carrying on a primary production business? | A1: No

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. You operate a farm. The main residence of you and your partner is on the farm. The farm has been held for over X years. The farm currently has Y head of stock including young. The farm has one acre of orchids. You and your partner work on the farm for a combined total of four hours each day. You and your partner both have permanent employment positions unrelated to the farm. You are actively looking at expanding the business by purchasing additional land. You also breed a small number of other livestock on the farm. Over the time period of owning the farm you have invested funds in sheds and fencing as well as the tractor. In the future you would like to stop working as an employee and be self supported by the income from the farm. You have provided the following historical sales figures: You have produced no income in the last four years.

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

Reasons for decision: Summary: Taxation Ruling TR 97/11 sets out the Commissioners opinion on how to determine whether an activity amounts to the carrying on a business of primary production. These indicators are not specific to the primary production industry, rather they can be used, to determine whether any activity amounts to the carrying on of a business. Paragraph 13 of TR 97/11 provides that the following are relevant indicators: · whether the activity has a significant commercial purpose · 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 on in a businesslike manner, such that it is directed at making a profit · the size, scale and permanency of each activity, and · whether the activity is better described as a hobby, a form of recreation or a sporting activity. No single indicator is decisive. Rather, all the indicators are considered in combination. Your facts indicate that your farming activities are only carried out on a small scale. In addition you have produced nil income for the past four years. It is unlikely that your business will produce a profit in the near future. The lack of income in past years, the small scale and the unlikelihood of profits in the future would indicate that your activities do not constitute carrying on a business. The general impression gained is that your activities are more appropriately considered to be a hobby and as such you are not entitled to deduct expenses associated with your activity under 8-1 of the Income Tax Assessment Act 1997.

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.