Edited version of private advice

Authorisation Number: 1052224510390

Date of advice: 27 February 2024

Ruling

Subject: Am I in business - primary production

Question

Are you carrying on a primary production business?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2023

Year ending 30 June 2024

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You operate a business of commercial composting.

Your primary aim to is to produce a microbially dense product of soil amendment and carbon sequestration, this results in an aerobic, dynamic compost with a high fungus to bacteria ratio.

You grow a substantial amount of your own grass and hay to use in the manufacturing of your compost.

This grass is not sold in its raw form. It is used as a base for compost processing.

You source all your other necessary materials from other external sources.

You obtain wood waste from sawmills and use a woodchipper you have on site to create sawdust to complement the sawdust you source from sawmills.

You also chip forest management materials.

You source manure from chicken sheds and feedlots.

A combination of these materials is then processed into a compost product.

This product is then turned and watered daily to facilitate microbial growth.

A tractor is utilised to aid in this action.

The produced compost is then sold to other primary producers and businesses for use in turn for their respective activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1

Reasons for decision

The definition of a primary production business is outlined under subsection 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). A primary production business is recognised if you carry on a business of:

(a)    cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment; or

(b)    maintaining animals for the purpose of selling them or their bodily produce (including natural increase); or

(c)    manufacturing dairy produce from raw material that you produced; or

(d)    conducting operations relating directly to taking or catching fish, turtles, dugong, bêche-de-mer, crustaceans or aquatic molluscs; or

(e)    conducting operations relating directly to taking or culturing pearls or pearl shell; or

(f)     planting or tending trees in a plantation or forest that are intended to be felled; or

(g)    felling trees in a plantation or forest; or

(h)    transporting trees, or parts of trees, that you felled in a plantation or forest to the place:

(i)   where they are first to be milled or processed; or

(ii)  from which they are to be transported to the place where they are first to be milled or processed

Cultivating or propagating of plants, fungi or their products or parts in any physical environment

One of the indicators of a primary producer is an entity that produces plant or fungi matter in a physical environment.

You have stated that the procedure of manufacturing your product involves the cultivation of your own grass and hay materials.

This grass and hay are then used as a base for manufacturing your product.

This material is not sold in its raw form for the purposes of earning assessable income.

Maintaining animals for the purpose of selling them or their bodily produce

A primary producer will invest in the maintenance of livestock for the purposes of selling them or their bodily produce to produce assessable income.

You have stated that the manure used to produce your product is sourced from feedlots and chicken sheds.

This material is used as a component when manufacturing your product.

This material is not sold in its raw form for the purposes of earning assessable income

Transporting trees, or parts of trees, that you felled in a plantation or forest

Another indicator of a primary producer is an entity that transports tree material that has been felled for the purpose of processing or to transport the material to the place where it will be processed.

You have stated that the tree material you process into sawdust has been acquired from sawmills and other wood mills.

You acquire this material from external enterprises, you have not grown the trees themselves.

This material is used as a component when manufacturing your product and is not sold in its raw from for the purposes of earning assessable income.

Conclusion

In weighing up the relevant factors it is considered that you are not carrying on a business of primary production.

Whilst you produce some of the raw materials, including hay and grass, to be used in the production of your final product, your final product, compost, is a manufactured product. This aligns with the Australian and New Zealand Standard Industrial Classification (ANZSIC) of composting as a manufacturing industry, as opposed to primary production.

As such we do not consider that your business is a primary production business.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

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).