Private ruling: Am I in business
Published: January 2012
Ruling period: Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ending 30 June 2012
Date scheme commenced: 1 July 2007

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

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. In 20XX you developed an idea to plant native trees with a view to commercial harvesting of the timber in future years for the purpose of sale for milling. Preparation and planting of the trees commenced in 20XX. You used a 'woodlot' system in an unused paddock on your property of approximately eight hectares. You contacted the local council and put on record your plan regarding the woodlet. You followed information provided by the Department of Primary Industries with regards to tree type. Since 20XX more than two thirds of the paddock area has been planted with an estimate of X,000 native hardwood trees. You plan to continue planting a further three to four thousand trees in the paddock filling it to capacity. You aim to commence planting a smaller paddock of approximately 3-4 hectares which should hold in the vicinity of four to five thousand additional trees. You expect to harvest the trees at 20-25 years of age. You have permanent outside employment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. If you are found to be carrying on a business, then the income from your activities will be taxable under section 6-5 of the Income Tax Assessment Act 1997 ( ITAA 1977) and expenses will be deductible under section 8-1 of the ITAA 1997. If your activity is classified as a business and you sell the property as a forestry plantation the CGT provisions will apply. As per Taxation Ruling TR95/6 a taxpayer who is engaged in forest operations is a primary producer for income tax purposes if those forestry activities constitute the carrying on of a business. The term forest operations is defined in subsection 6(1) as: The planting or tending in a plantation or forest of trees intended for felling; or The felling of trees in a plantation or forest; | Detailed Reasoning - Carrying on a business: Section 995-1 of the ITAA 1977 defines a business as including any profession, trade employment, vocation or calling, but does not include occupation as an employee. Activities that have a commercial or profit making purpose and are organised in a business-like way will generally amount to carrying on a business. As per TR 95/6 paragraph 87 In determining whether particular activities constitute the carrying on of a business, courts and tribunals have considered the following elements to be relevant: · whether the activities have a significant commercial purpose · the scale of the activities · the nature of the activities, particularly whether they have the purpose of profit making · repetition and regularity of the activities · whether the activities are organised in a business-like manner · volume of the operations and the amount of the capital employed · whether the activities may properly be described as the pursuit of a hobby or recreation · the degree of control held by the person over the development and maintenance of the land In your case, the following points can be noted regarding these principal factors: · You have conducted the activity in a manner to ensure its viability and in accordance with industry standards, have a business plan, conducted strength, weakness, opportunities and threats analysis and have planted a number of trees sufficient for a commercial enterprise. · In view of your particular facts, the Commissioner would view your activities to date as being an activity of carrying on a business. You have entered into this venture with the purpose of making a profit. There is repetition and regularity in the activities and you have organised this venture in a business-like manner. Any income earned will be considered to constitute assessable income and any business expenses can be claimed as deductions.

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. | Reasons for decision: These reasons for decision accompany the Notice of private ruling for the tax payer.