1011599740147 | Legal database

Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011599740147

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Classification of income as primary production income

Questions

Is the dividend received from a company primary production income for the purposes of section 392-80 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes.

Is the dividend received from a co-operative primary production income for the purposes of section 392-80 of the ITAA 1997?

Yes.

This ruling applies for the following period

For the year ended 30 June 2009

The scheme commenced on

1 July 2004

Relevant facts

You carry on a primary production business and are a member of a dairy co-operative.

You were required to hold a minimum number of shares in the co-operative to be able to supply milk. Through the supplying of milk and subsequent share levies you obtained more shares.

The demerger of part of the co-operative resulted in you owing shares in the resulting company.

Under a compulsory acquisition shareholders received dividends from both the company and the co-operative.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 392-80(2)

Reasons for decision

Summary

The dividends from both the company and the co-operative are considered to be assessable primary production income for the purposes of section 392-80 of the ITAA 1997.

Detailed reasoning

The Commissioner's view on these questions is set out in the ATO Interpretive Decision ATO ID 2010/149. This ATO ID is directly applicable to this case.

(All legislative references are to the ITAA 1997 unless otherwise stated.)

A taxpayer's assessable primary production income for an income year is the amount of their basic assessable income for the income year that 'was *derived from, or resulted from, your carrying on a *primary production business' (subsection 392-80(2)).

The Income Tax legislation does not provide guidance as to when an amount was derived from, or results from, your carrying on a primary production business. However, the Explanatory Memorandum to the Income Tax Assessment Amendment Bill (No. 2) 1978, which first used the words 'assessable primary production income' in the corresponding provision in the Income Tax Assessment Act 1936 (ITAA 1936), indicates that the relationship between the income and the primary production business is to be close and direct rather than indirect or remote.

The definition of 'assessable primary production income' in the corresponding provision in the ITAA 1936 uses the phrase 'in consequence of the carrying on of a business of primary production'. In AAT Case 6254, AAT Case X82 21 ATR 3708; 90 ATC 599, Dr Gerber observed:

The term "in consequence of " connotes causality - in this case whether the interest was "caused" to be derived as the "predominant" or "proximate" or "direct" result of the carrying on of the business of primary production. This is a question of fact.

In this case, it is considered that purchasing shares in the co-operative is a direct consequence of carrying on the taxpayer's business. This is because the taxpayer is required to hold a minimum number of shares, and to continue to purchase shares in the co-operative (based on the quantity of milk supplied), in order to supply dairy products to the co-operative. The number of shares the taxpayer holds in the co-operative is a direct result of the quantity of dairy products supplied to the co-operative.

As the dividends received were calculated by direct reference to the number of shares held by the taxpayer in the co-operative, this constitutes a close and direct relationship between the dividends received and the taxpayer's primary production business of production and supply of dairy products. That is, the reason for receiving the dividends is as a direct result of carrying on of the primary production business. Therefore, the relationship between the dividends received and the carrying on of the primary production business is such that the dividends are '*derived from, or resulted from, your carrying on a *primary production business' (subsection 392-80(2)).

The dividends received from shares acquired by the taxpayer under the compulsory share acquisition scheme are assessable primary production income as defined under subsection 392-80(2) because there is a close and direct relationship between the dividends received and the primary production business.

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).