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Edited version of your written advice
Authorisation Number: 1012931745750
Date of advice: 23 December 2015
Ruling
Subject: Am I in business
Question
Are you carrying on a business as a farmer?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Year ended 30 June 2019
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You are planning to undertake certain farming activities.
The activities will be undertaken on a small scale.
The amounts to be received from the activities will be less than $10,000 annually.
Having regard to the costs that will be incurred, you do not anticipate making a profit from the activities.
You are undertaking the activities because you enjoy it and it is a passion of yours.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 995-1
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.
Application to your circumstances
Overall, the above factors point to your activity being a hobby farm rather than a business. Your activity is conducted on a small scale and it appears that your efforts are not driven towards making the activity profitable but are pursued for other reasons. Consequently, your activities do not amount to the carrying on of a business and can be better described as a recreational pursuit or a hobby.
Therefore, any amounts you receive in relation to this activity will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you have incurred in relation to this activity will not be deductible under section 8-1 of the ITAA 1997.
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