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Edited version of your written advice
Authorisation Number: 1012827582632
Date of advice: 22 June 2015
Ruling
Subject: Are you considered to be carrying on a business
Question
Is the activity undertaken sufficient to warrant a primary production business?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on
1 July 2013
Relevant facts
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• Private Ruling application form
• Email containing further information.
You have moved from a hobby farm to this property. The property was previously used for the same type of activity.
You will conduct the activity in a similar manner to industry standards and of sufficient scale to potentially make a profit.
You have a business plan and have had previous experience in this type of activity.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income according to ordinary concepts. This ordinary income includes amongst other things, income from salary and wages and business operations.
Section 8-1 of the ITAA 1997 allows you to claim a deduction for a loss or outgoing that is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business to gain or produce assessable income. These deductions are limited by the exclusion of losses or outgoings that are capital, private or domestic in nature.
Carrying on a business
Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.
The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the particular facts.
Taxation Ruling TR 97/11 incorporates the general factors.
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. Whether a 'business' is carried on depends on the large or general impression.
In your case, the following points can be noted regarding these principal factors:
You are conducting your activity at a scale where you can potentially make a profit from the activity. You intend to have regularity and repetition through having stock on the property in numbers to suit the season. You have identified the available markets and have sold stock through these markets. You have conducted the activity in a manner to ensure its viability and in accordance with industry standards. You have a business plan which was developed through your previous experience with stock. You have expanded your operation from a hobby to this larger scale.
In view of your particular facts, the Commissioner would view your activities to date as being an activity of carrying on a business of primary production. 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.
Note: Any losses from the activity would be subject to the non-commercial losses provisions.
ATO view documents
Taxation Ruling TR 97/11
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