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Edited version of private ruling
Authorisation Number: 1011519170683
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Ruling
Subject: business activity
Question
Are you carrying on a business of buying and selling livestock?
Answer
Yes.
This ruling applies for the following period:
1 July 2010 to 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You intend to purchase and sell livestock on a yearly basis with the sole purpose of making a profit.
The expenses to maintain the livestock up to sale date would include but not be limited to such items as freight, fodder, mustering, selling expenses and veterinary expenses.
The intended turnaround from purchase to sale would be approximately 180 days depending on seasonal conditions.
You have experience in the livestock industry. There has been no analysis of the land to be used and the intention is to run the livestock on agisted land from an arms length third party and sell them on the commercial market, not to friends or family. There has been no research into the activity, no capital purchases have been made and there is no business plan.
The repetition and regularity of the activity will be minimal. There will be an original purchase and then sale of the livestock (once every 6 to 12 months). There will be no activities outside of the purchase and sale of the livestock. This purchase and sale may however be repeated a number of times, depending on the availability of agistment country and the livestock market.
The activity will be carried on in a similar way to that of the ordinary trade as it will purchase and hold livestock on land before selling it for a profit. The livestock will be purchased and sold with minimal activities required.
Reasons for decision
Summary
Your intended activity of growing livestock for profit is considered to be carrying on a business.
Carrying on a business
Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.
The question of whether you are carrying on a business is a question of fact and degree. There are no rigid rules for determining whether the activity amounts to the carrying on of a business. The facts of each case must be examined. In Martin v FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551, Webb J said:
The test is both subjective and objective; it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and, as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained.
However, the courts have developed a series of indicators that can be applied to your circumstances to determine whether you are carrying on a business.
Taxation Ruling TR 97/11: 'Income tax: am I carrying on a business of primary production?' summarises these indicators. In the Commissioner's view, the factors that are considered important in determining the question of business activity are:
- whether the activity has a significant commercial purpose or character
- 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 regularity and repetition of the activity
- 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
- whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit
- the size, scale and permanency of the activity, and
- whether the activity is better described as a hobby, a form of recreation or sporting activity.
No one indicator is decisive. The indicators must be considered in combination and as a whole.
In AAT Case 11,229 (1996) 33 ATR 1243; Case 54/96 (1996) 96 ATC 521 the Tribunal accepted that the taxpayer was carrying on a business although no business plan was evident. They stated:
…that formal business plans were just not part of the applicant's agenda, for any of his activities (smash repairs, or horse racing and breeding)…and ...the husband was knowledgeable about matters relating to the racing and breeding of horses.
Business indicators applied to your circumstances
Your activity has significant commercial purpose as the sole purpose is to make a profit. The sale of X head of livestock shows significant commercial purpose.
Your intention is clear that you will carry out an activity of buying and selling livestock and expect to make a profit from the activity.
The turnaround and expected sale of livestock each 180 days in the activity of growing livestock shows there is regularity and repetition of the activity.
The activity will be carried on in a similar way to that of the ordinary trade as you will purchase and hold livestock on agisted land before selling them for a profit.
To carry out the activity in a similar way to that of the ordinary trade will require some planning, albeit minimal, in order to arrange the provision of freight, fodder, mustering, selling and veterinary requirements. You have this capability as you have experience in the livestock industry.
The size, scale and permanency of growing X head of livestock per annum indicate an activity that is more than that of a hobby or a form of recreation.
The large and general impression gained after examining the activity in the light of all of the business indicators and the relevant case law is that your livestock growing activity will amount to the carrying on of a business. In summary, this is because:
- Your intention is to make a profit and you genuinely believe that a profit will be made.
- Your activity will have a significant commercial purpose.
- There will be repetition and regularity.
The business methods and procedures will be of a type ordinarily used in livestock growing businesses.
The activity will be arranged in a business like manner.
The scale of the activity will be potentially commercially viable.
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