Private ruling: Carrying on a business - primary production
Date of advice: 5 September 2025
Published: 27 October 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Were you considered to have been carrying on a primary production business for the purposes of satisfying subparagraph 420-13(e)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect to 'Primary Producer Registered Emission Units'? | A1: Yes. | Q2: Does your holding of Australian Carbon Credit Units (ACCUs) satisfy the definition of 'Primary Producer Registered Emissions Units' under section 420-13 of the Income Tax Assessment Act 1997, such that the concessional treatment provided under section 420-62 of the ITAA 1997 applies? | A2: Yes. | Q3: Will you be eligible for concessional tax treatment under primary production averaging and the Farm Management Deposit scheme in accordance with subsections 420-65(7) and 420-70(3) of the ITAA 1997? | A3: Yes.

Relevant facts and circumstances: Person A (You) and Person B own land as tenants in common. You commenced carrying on farming activities on part of this land as a sole trader. There is no business plan for the farming activities. You hold relevant qualifications in farming. Your decision to run a farming business is deeply rooted in both passion, family heritage and continuing the family tradition. You possess farming experience through your active involvement in your family's farming operations over several years. The farming activities you conduct are similar in size and scale to similar landholders in the same region. This is supported by your average seasonal carrying capacity, stock turnover, and sales figures. Your involvement in the farming operations is regular and repetitive. The are no employees of the business however contract labour is engaged on an as needed basis to undertake a range of farming business activities. You contributed significant capital into the farming enterprise during particularly for improvements, infrastructure, and plant and equipment. The capital was sourced through a combination of external bank financing and funds generated from the sale of prior owned farming land. Your operations have resulted in financial losses over several years. Your operations resulted in a profit in the relevant financial year. Based on analysis conducted over recent years, along with adjustments to the operating model, you anticipate that you have taken the necessary steps to mitigate future financial losses. You have a systematic approach to your record keeping. The land has a carbon farming initiative (the project) under the Carbon Credits (Carbon Farming Initiative) Act 2011 that produces Australian Credit Carbon Units (ACCU's). The project is carried out on the same land titles that your farming activities are conducted on. You were issued ACCUs in the relevant financial year. The ACCU's are sold when they are issued.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Division 392 | Income Tax Assessment Act 1997 Division 393 | Income Tax Assessment Act 1997 Division 420 | Income Tax Assessment Act 1997 Subdivision 420-D | Income Tax Assessment Act 1997 Section 420-13 | Income Tax Assessment Act 1997 Section 420-60 | Income Tax Assessment Act 1997 Section 420-62 | Income Tax Assessment Act 1997 Subsection 420-60(3) | Income Tax Assessment Act 1997 Section 420-65 | Income Tax Assessment Act 1997 Subsection 420-65(1) | Income Tax Assessment Act 1997 Subsection 420-65(2) | Income Tax Assessment Act 1997 Subsection 420-65(6) | Income Tax Assessment Act 1997 Subsection 420-65(7) | Income Tax Assessment Act 1997 Subsection 420-70(1) | Income Tax Assessment Act 1997 Subsection 420-70(4) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision: Summary: You are considered to be carrying on a business as a sole trader engaged in primary production. As these activities occur on the same land as the emissions reduction project, you satisfy the condition in subparagraph 420-13(e)(i) of the ITAA 1997, qualifying the ACCUs you hold as 'primary producer registered emissions units'. | Detailed Reasoning - Detailed reasoning: Under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), assessable income includes income derived according to ordinary concepts. Income earned from carrying on a business generally falls within this category. The definition of 'business' is provided in section 995-1 of the ITAA 1997, which includes any profession, trade, employment, vocation, or calling, but specifically excludes activities undertaken as an employee. Whether an individual is carrying on a business is a factual question assessed on a case-by-case basis. The courts have developed a set of indicators to assist in determining this, which are summarised in Taxation Ruling 97/11 'Income tax: Am I carrying on a business of primary production? ' (TR 97/11) These indicators outlined in paragraph 13 of TR/97/11 include: • the activity has a significant commercial purpose or character; • there is more than a mere intention to engage in business; • there is both a purpose and a prospect of profit; • the activity is carried out with repetition and regularity; • the activity resembles ordinary trade practices in the relevant industry; • the activity is planned, organised, and conducted in a businesslike manner; • the size, scale, and permanence of the activity support a business classification; • the activity is not better described as a hobby, recreation, or sport. Importantly, no single indicator is conclusive. As outlined in paragraphs 15 and 16 of TR 97/11, all indicators must be considered collectively to determine whether the activity has a commercial flavour . If the activity lacks a genuine profit motive and is unlikely to ever be profitable, it is generally not considered a business. | Detailed Reasoning - Significant commercial purpose: As discussed in TR 97/11 at paragraph 29, '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'. This indicator covers aspects of all the other indicators, and broadly requires that you be able to show that the activity is carried on for commercial reasons and in a commercially viable manner. You need to be able to show that the interaction between the size and scale of the activity, the repetition and regularity and the intention and prospect of profit are sufficient to conclude that the activity has a significant commercial purpose. Based on the information provided, the following factors support the conclusion that the activity is undertaken with a commercial purpose or character: • you hold relevant qualifications • you have prior experience in conducting farming activities • the activities are performed with regularity and repetition, reflected in consistent hours of engagement. • the activity has generated a profit, and you have implemented changes aimed at profitability in future income years • the size and scale of the operation are sufficient to support a commercial undertaking. | Detailed Reasoning - More than intention to engage in business: 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.' You possess prior experience in primary production activities, hold relevant qualification in the field, and actively engage in maintaining animals for the purpose of selling them. | Detailed Reasoning - Prospect of profit: Paragraph 48 of TR 97/11 provides 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. 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. 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...'. 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). From the information provided it is clear that you have established an intention to carry on your primary production activities to derive a profit. You have relevant qualifications, experience, and continue to obtain advice from other industry professionals to ensure the profitability of the activity. This supports the conclusion that the activities are undertaken with both a purpose and a genuine prospect of generating profit. | Detailed Reasoning - Regularity and repetition of the activity: Paragraph 55 of TR 97/11 provides 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'. 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. Based on the information provided, it is clear you have engaged in repetition and regularity in the farming activity for the last several years. | Detailed Reasoning - 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: Paragraph 63 of Taxation Ruling TR 97/11 provides that an activity is more likely to constitute a business where it is conducted in a manner consistent with how other participants in the same industry operate. This principle is supported by Lord Clyde in IR Commissioners v. Livingston (TC 542), where he stated: "... 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." In assessing this indicator, practices such as volume of sales, customer base and marketing, expenses incurred, capital investment and expertise and experience of others engaged in similar business activities may be compared. In this instance, your operations are consistent with those undertaken by other farmers in your region who operate at a similar scale, as evidenced by the volume of sales recorded over the past several income years. You regularly consult with a variety of people engaged in the industry. The experience you bring to your farming activities stems from your long-term involvement in these practices through your generational farming activities. From the facts provided, the farming activities are carried on in a similar manner to that of ordinary trade in that line of business. | Detailed Reasoning - Planned, organised and carried on in a businesslike manner: Paragraph 70 of TR 97/11 clarifies that the weight attributed to this indicator will depend on the specific facts and circumstances. It is acknowledged that a taxpayer may still be considered to be carrying on a business of primary production despite exhibiting poor organisational skills. In your case, you have been operating the farming activities as a sole trader for the last several years. You maintain financial business records and utilise accountants to meet your income tax and GST obligations. Whilst financial records are not indicative of a business in isolation, the systematic manner in which you account for your operations is organised, planned and business-like. | Detailed Reasoning - The size, scale and permanency of the activity: Paragraph 77 of Taxation Ruling TR 97/11 states that the larger the scale of an activity, the more likely it is that the taxpayer is carrying on a business of primary production. However, scale alone is not determinative. As held in Thomas (ATC 4099; ATR 171), a person may still be carrying on a business even if the activity is conducted on a small scale. This principle was applied in JR Walker , where the taxpayer was engaged in goat breeding involving only five Angora goats, two of which subsequently died. Despite the limited scale, the court found that a business was being carried on. The decision was based on the taxpayer's profit-making purpose, the repetition and regularity of the activities, and the significant capital investment in breeding stock. Research from authenticated sources supported the commercial viability of the venture. Justice Ryan, in JR Walker (ATC 4182; ATR 334), stated: "... 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." This case illustrates that even small-scale operations may constitute a business where there is evidence of commercial intent, structured conduct, and informed decision-making. Based on the information provided, it is noted that you maintain a property of sufficient size to accommodate your farming operations and when required you engage the services of external paid contractors to undertake a range of farming activities. This level of operational infrastructure and reliance on professional support services demonstrates the size and scale of the activity, consistent with the conduct of a business of primary production. | Detailed Reasoning - Whether the activity is better described as a hobby: Paragraph 86 of Taxation Ruling TR 97/11 affirms that the pursuit of a hobby does not constitute the carrying on of a business for taxation purposes. Income derived from such activities is not considered assessable income under the Income Tax Assessment Act 1997. This principle is supported by the decision in Ferguson , where the Court stated: "... 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." ( Ferguson at ATC 4265; ATR 877) (Emphasis added) This highlights that even where an activity involves significant effort or investment, it may still fall short of being classified as a business if it lacks a commercial character and is more accurately described as a personal pursuit. Your primary production activities would not be better described as a hobby, recreation, or sporting activity | Detailed Reasoning - Primary production business: Subsection 995-1(1) of the ITAA 1997 provides that a taxpayer carries on a primary production business if the taxpayer carries on a business of maintaining animals for the purpose of selling them or their bodily produce (including natural increase). | Detailed Reasoning - Primary producer registered emissions unit: Section 420-13 of the ITAA 1997 defines the criteria under which a 'registered emissions unit' may be classified as a 'primary producer registered emissions unit'. Specifically, subparagraph 420-13(e)(i) stipulates that, for the duration of the relevant project, the taxpayer must be actively engaged in a primary production business that satisfies the conditions outlined in paragraph (d). Paragraph (d) requires that the primary production business be conducted either: • within the same area as the project, or • in an area that is connected to the area in which the project is being undertaken. | Detailed Reasoning - Conclusion: Considering your circumstances and weighing them against the relevant factors outlined in TR 97/11, you are considered to be carrying on a business as a sole trader. In accordance with subsection 995-1(1) of the ITAA 1997 you are carrying on a business of primary production as the activities you conduct are maintaining animals for the purpose of selling them or their bodily produce. Furthermore, the primary production activities are conducted on the same area of land on which the carbon farming project is undertaken. Accordingly, you satisfy the condition set out in subparagraph 420-13(e)(i) of the ITAA 1997, which requires that the primary production business be carried on in the same area as the project for the emissions units to qualify as 'primary producer registered emissions units'. | Summary: The concessional tax treatment provided under section 420-62 of the ITAA 1997 is applicable, as you satisfy all the criteria under section 420-13 of the ITAA 1997 for the Australian Carbon Credit Units you hold to be classified as 'primary producer registered emissions units'. | Detailed Reasoning - Detailed Reasoning: Treasury Laws Amendment (2023 Measures No. 2) Bill 2023 -Explanatory Memorandum - Chapter 3: Tax accounting for primary producer registered emissions units (the EM), was introduced to allow 'eligible primary producers' to be able to treat the net proceeds from the sale of Australian carbon credit units they first held on or after 1 July 20YY as primary production income for the purposes of the Farm Management Deposit Scheme and accessing income tax averaging arrangements, provided they are individuals who meet the specified criteria'. (paragraph 3.8 of the EM) Division 420 of the Income Tax Assessment Act 1997 (ITAA 1997) governs the taxation of financial arrangements, including registered emissions units such as Australian Carbon Credit Units. Under Subdivision 420-D, you are generally required to account for changes in the value of registered emissions units at the beginning and end of each income year. This includes recognising unrealised gains or losses in their income tax return, reflecting the market value fluctuations of the units held. However, section 420-62 provides a concessional tax treatment for ACCUs that qualify as 'primary producer registered emissions units'. Where the relevant criteria under section 420-13 of the ITAA 1997 is satisfied you are relieved from the annual valuation and reporting obligations imposed by Subdivision 420-D of the ITAA 1997. It is important to note that section 420-60 remains applicable even where concessional treatment under section 420-62 applies. Specifically, subsection 420-60(3) provides that the cost of an ACCU issued under the Carbon Credits (Carbon Farming Initiative) Act 2011 is deemed to be its market value immediately after the taxpayer begins to hold it. This provision ensures that the cost base of the unit is appropriately established for tax purposes. Under section 420-13 of the ITAA 1997, a registered emissions unit is classified as a primary producer registered emissions unit if all of the following conditions are satisfied: (a) The unit is an Australian Carbon Credit Unit (ACCU); (b) You are an individual; (c) You first hold the unit on or after 1 July 20YY, either because: (i) It was issued to you under the Carbon Credits (Carbon Farming Initiative) Act 2011 in relation to an eligible offsets project; or (ii) It was transferred to you by a carbon service provider who held the unit after it was issued to them on or after 1 July 20YY under that Act in relation to such a project; (d) At all times while the project is carried on, a primary production business is conducted: (i) In the same area as the project; or (ii) In an area connected to the area in which the project is carried on; (e) At all times while the project is carried on, you are: (i) Carrying on a primary production business as described in paragraph (d); or (ii) A beneficiary of a trust that carries on such a business; or (iii) A partner in a partnership that carries on such a business. Paragraph 3.16 of the EM outlines when Subdivision 420-D will continue to apply: 3.16 Existing Subdivision 420-D that sets out the tax treatment for registered emissions units is intended to continue to apply unaffected if the above conditions are not met, such as for pre-1 July 20YY units or where the primary production activity is not carried on as required. In this case: (a) the units produced by the project are Australian Carbon Credit Units. (b) you are an individual. (c) you have been issued ACCUs after 1 July 20YY under the Carbon Credits (Carbon Farming Initiative) Act 2011 (d) you have carried on primary production business on the same land as the project since 1 July 20YY Based on the above facts, all the conditions set out in section 420-13 of the ITAA 1997 have been satisfied. Accordingly, the Australian Carbon Credit Units you hold are regarded as 'primary producer registered emissions units' and the concessional tax treatment provided under section 420-62 of the ITAA 1997 will be applicable. This means you don't need to do yearly valuations or reporting, and you'll now be taxed when you dispose of the units. However, section 420-60 of the ITAA 1997 still applies to help determine the cost of your units. | Summary: The income received from the disposal of ACCUs from 1 July 20YY will be treated as primary production income and in accordance with Subsection 420-65(7) and subsection 420-70(3) of the ITAA 1997, you are eligible to apply the concessional tax treatments under Divisions 392 and 393 of the ITAA 1997 to that income. | Detailed Reasoning - Detailed Reasoning: Subsection 420-65(7) of the ITAA 1997 provides an exemption for primary producers in relation to deductions for expenditure associated with registered emission units, such as Australian Carbon Credit Units. While subsections 420-65(1), (2), and (6) of the ITAA 1997 generally restrict deductions for expenditure incurred in acquiring or ceasing to hold registered emission units, subsection 420-65(7) of the ITAA 1997 clarifies that these restrictions do not apply to the operation of: • Division 392 - which allows primary producers to apply long-term income averaging to smooth tax liabilities over multiple years, and • Division 393 - which governs the Farm Management Deposits (FMD) Scheme, enabling eligible taxpayers to defer income and manage financial risk. This is limited to expenditure incurred in becoming a holder or ceasing to hold a primary producer registered emissions unit, ensuring that such income remains eligible for concessional treatment under the primary production tax provisions. Additionally, subsection 420-65(7) and subsection 420-70(3) of the ITAA 1997 provide that income derived from ceasing to hold a ' primary producer registered emissions unit'does not lose eligibility for concessional tax treatment under Division 392 and Division 393 of the ITAA 1997. These provisions ensure that, although income from ACCUs is assessed under Division 420 of the ITAA 1997, it continues to qualify for the concessional tax treatments available to primary producers. As previously outlined, you are carrying on a business of primary production, and the ACCUs you hold are considered 'primary producer registered emissions units'. You acquired and disposed of these units generating income from their disposal. The income derived from the disposal of ACCUs that you acquired from 1 July 20YY qualify as primary production income. In accordance with subsections 420-65(7) and 420-70(3) of the Income Tax Assessment Act 1997, you are entitled to apply the concessional tax treatments available under Divisions 392 and 393 of the ITAA 1997 to this income.