Private ruling: Business deductions - trading stock or plant?
Published: July 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is your interest in livestock trading stock? | A1: Yes. | Q2: Is your interest in livestock a depreciating asset? | A2: No.

Relevant facts and circumstances: You run a livestock breeding business. In the 2011-12 income year you purchased an interest in the breeding rights of livestock from another country. The livestock will stand in Australia for a set period of time each year. During this time semen is extracted from the livestock and then sold to external customers. Your interest in the livestock will continue until the earlier of: · The death of the livestock · The termination of the agreement with the seller by the mutual consent of the parties · The livestock's health is negatively compromised on a permanent basis to such an extent that they can no longer travel between the two countries. The terms of the agreement require that the seller be consulted in relation to the breeding career of the livestock in Australia, including the number of animals to be bred, the fee to be charged, advertising, promotion, care, maintenance and handling of the livestock.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Section 40-30 | Income Tax Assessment Act 1997 Division 70 | Income Tax Assessment Act 1997 Section 70-10 | Income Tax Assessment Act 1997 Subsection 995-1

Reasons for decision: Summary: Taxation Ruling TR 2008/2 deals specifically with income tax issues relating to the livestock industry. A livestock breeding business is a primary production business as it involves maintaining animals for the purpose of selling them or their bodily produce. 'Live stock' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). The definition of 'live stock' does not expand on what is included within its bounds but rather specifies that beasts of burden or working beasts will only be considered live stock if used in a business of primary production. By inference, the definition includes all animals used in a business of primary production. Accordingly, where animals are held in a breeding business they are considered live stock. A fractional interest in livestock is not excluded from being treated as live stock. Paragraph 136 of TR 2008/2 provides that a fractional interest of an animal that is held by an entity carrying on a livestock breeding business will be treated as live stock on the same basis as if the animal was owned by a single entity. You are carrying on a primary production livestock breeding business. You acquired the lifetime rights to the southern hemisphere breeding season of livestock. These rights equate to a fractional interest in the livestock and in accordance with TR 2008/2 this interest will come within the definition of live stock. The definition of trading stock under section 70-10 of the ITAA 1997 includes live stock. Accordingly, the interest you hold in the livestock is considered trading stock. Section 40-30 of the ITAA 1997 excludes an item of trading stock from being a depreciating asset. Accordingly the interest you hold in the livestock is not a depreciating asset for the purposes of Division 40 of the ITAA 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.