ATO Interpretative Decision

ATO ID 2004/262 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it is superseded by the 2008 addendum to TR 2001/14 which inserted paragraphs 92A-92C.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a Landcare grant received from the National Landcare Program considered to be assessable income 'from' the business activity when:

(a)

applying the loss deferral rule in subsection 35-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997); or

(b)

determining whether the Assessable income test in section 35-30 of the ITAA 1997 has been satisfied?

Decision

Yes. If there is a sufficiently proximate connection between the grant and the carrying on of the business, the landcare grant is considered to be assessable income 'from' the business activity for a taxpayer who is carrying on a business when:

(a)

applying the loss deferral rule in Division 35, in subsection 35-10(2) of the ITAA 1997; and

(b)

determining whether the Assessable income test in section 35-30 of the ITAA 1997 has been satisfied.

Facts

An individual taxpayer carried on a primary production business that commenced in July 2001.

During the 2002-03 income year the taxpayer applied for and was granted a landcare grant from the Commonwealth Department of Agriculture, Fisheries & Forestry which administers the National Land Care Program. This grant was provided to enable the taxpayer to reclaim gully erosion on the farm property by fencing and planting native vegetation. The property is the major asset in the primary production business.

Reasons for Decision

Division 35 of the ITAA 1997 must be considered by all individual taxpayers who carry on a business activity. Unless the business activity satisfies one of the four tests (Assessable income test, Profits test, Real Property test or Other Assets test), the primary production business exception in subsection 35-10(4) of the ITAA 1997 applies, or the Commissioner exercises the discretion in section 35-55 of the ITAA 1997; the loss deferral rule in subsection 35-10(2) of the ITAA 1997 will apply to defer the loss to a future income year.

The Assessable income test in section 35-30 of the ITAA 1997 provides that the loss deferral rule in section 35-10 of the ITAA 1997 will not apply for an income year where the assessable income 'from' the business activity in question 'is at least $20,000'.

Whether an amount of income is 'from' a business activity, depends on whether that activity is the source or origin of that income based on the ordinary meaning of 'from' (see BHP Petroleum (Timor Sea) Pty Ltd & Ors v. Minister for Resources (1994) 49 FCR 155; (1994) 28 ATR 16); or whether that income is an incident of carrying that activity on (see Kidston Goldmines Ltd v. Federal Commissioner of Taxation (1991) 30 FCR 77; 91 ATC 4538; (1991) 22 ATR 168).

In this case, the landcare grant is provided to assist the taxpayer with restoring and conserving land and in solving land degradation problems. It is paid to maintain and improve the land which is the major business asset of the primary production business. Hence there is a sufficiently proximate connection between the grant and the carrying on of the business.

The landcare grant received by the taxpayer is considered to be 'from' the business activity as it is provided to sustain the business asset for the carrying on of the primary production business. Hence, it is included as assessable income for the purposes of both subsection 35-10(2) and section 35-30 of the ITAA 1997.

In addition, it follows that the landcare deduction is attributable to the primary production business activity.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   Division 35
   section 35-10
   subsection 35-10(2)
   section 35-30

Case References:
BHP Petroleum (Timor Sea) Pty Ltd & Ors v. Minister for Resources
   (1994) 49 FCR 155
   (1994) 28 ATR 16

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/14
Taxation Ruling TR 2001/14A - Addendum

Keywords
NCL carrying on a business
NCL carrying forward non commercial losses
NCL commissioner's discretion lead time
NCL non commercial business activity
NCL deferred losses
Non commercial losses

Business Line:  Business and Personal Taxes Centre of Expertise

Date of publication:  26 March 2004

ISSN: 1445-2782