Edited version of private advice

Authorisation Number: 1052388920952

Date of advice: 23 May 2025

Ruling

Subject: Am I in business

Question 1

Is beekeeping a primary production activity as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

Question 2

Is the income received from the beekeeping activity that you have carried on assessable for the purposes of section 6-5 of the ITAA 1997?

Answer 2

No.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You had kept X bee hives prior to the ruling periods, and you temporarily ceased the beekeeping activity because the consultant you used was no longer available.

You gained the beekeeping knowledge through the consultant you had previously engaged with. In addition, you also read literature and studied professional video documentaries on beekeeping and attended occasional educational opportunities.

During the relevant periods, you resumed the beekeeping activity after you found a new consultant. You opened a bank account for your beekeeping activity, acquired some bee hives and flowering pots, and registered an ABN as a sole trader.

You registered as a beekeeper with the state authority and continue to maintain the registration.

You also registered under the Food Act 1984 with the Environmental Health Department of your local council and maintain Food Business Registration with the same council.

You keep the bee hives on Property A and reside on adjacent Property B. You own both properties.

You developed a business plan with help from a third party. The business plan outlines the scale of the operation, the total capital investment, workforce arrangement (formed by family members), cash flow forecast, and the marketing plan.

The activities you have undertaken include:

•                     Cutting back trees and bush for the bee hives to capture abundant sunshine, clearing tracks to facilitate vehicle movement, clearing vegetation around pathways for easy access, levelling ground level to facilitate positioning of the hives, and installing reticulated water pipes at various locations on the property

•                     Planting flowering plants, propagating flower seeds, watering saplings, and pruning trees

•                     Constructing hives, checking swarm hives, introducing queen bees to new hives, periodically supplementing hive feed if needed, and checking hive conditions for infestation

•                     Collecting and spinning frames, sterilising glass jars, filling and labelling jars, and cleaning all equipment

•                     Packaging and distributing the raw honey product and

•                     Bookkeeping, procurement of supplies, and administration.

You and your spouse share the responsibilities of day-to-day management over the entire 365 days of the year. The weekly hours spent by both of you can range from XX-XX hours in winter to XX-XX hours in other seasons. At harvest, the time can increase to XX-XXX hours a week with the involvement of other family members.

The professional consultant has been given specific responsibility for monitoring and reporting any infestations to the state authority. The consultant has also given advice on the choice of flora.

Two harvests occurred in the relevant ruling years. You stated that weather conditions have a significant impact on honey production. The weather conditions for the 2 completed harvests were favourable, but the extreme dry conditions and lack of abundant flora have an adverse impact on the upcoming summer harvest (not commenced yet).

You provided a summary of actual honey production for the ruling periods.

You provided the current price of your honey per 100g.

You provided the profit and loss of your beekeeping activity, which shows losses for all relevant income years.

You designed a label. You have also developed a website. The website has only a few images uploaded. The 'Contact Us' page is not accessible.

Your proposed marketing plan didn't go ahead because all the honey harvested up to date was either distributed as a promotional product or sold through your personal networks. You have not yet advertised to the public. You advised that no one customer dominates the distribution.

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

Question 1

Under section 995-1 of the ITAA 1997, a primary production activity includes maintaining animals for the purpose of selling them or their bodily produce.

The Macquarie Dictionary (the dictionary) defines 'bee' as 'any of various hymenopterous insects of the superfamily Apoidea, which includes many social and solitary bees of several families, as the bumblebees, honey bees, etc'.

The dictionary also defines 'insect' as 'any animal of the subphylum Hexapoda...'. This means bees, being insects, are animals.

Paragraph 6 of the Taxation Determination 2008/26 (TD 2008/26) confirms that honey is the bodily produce of bees because it involves bees of different types using their bodies to transfer the nectar sucked from flowers into honey (Footnote 7 of TD 2008/26).

Therefore, beekeeping meets the definition of a primary production activity as defined in section 995-1 of the ITAA 1997.

Question 2

Section 6-5 of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts. This is called ordinary income. The income that you derive from a business is considered to be an ordinary income.

Section 8-1 of the ITAA 1997 allows deductions for expenses incurred in earning your assessable income or necessarily incurred in carrying on a business.

Under section 995-1 of the ITAA 1997, 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

The question of whether you are carrying on a business is a question of fact and degree. The courts have developed a series of indicators that you can apply to your circumstances to determine whether you are carrying on a business. These indicators are summarised in the Taxation Ruling 97/11 'Income tax: Am I carrying on a business of primary production?' (TR 97/11).

Paragraph 13 of TR 97/11 has outlined the relevant indicators of whether you are carrying on a business:

•                     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.

Paragraph 15 of TR 97/11 provides that no one indicator is decisive.

Paragraph 16 of TR 97/11 states that the indicators must be considered in combination and as a whole, and whether these factors provide the operations with a 'commercial flavour'.

The fundamental meaning of 'commercial', as defined in the dictionary, is 'capable of returning a profit'.

Paragraph 17 of TR 97/11 further highlights where an overall profit motive appears absent, and the activity does not look like it will ever produce a profit, it is unlikely that the activity will amount to a business.

Significant commercial purpose

According to paragraph 29 of TR 97/11, the 'significant commercial purpose' is closely linked to the size and scale of activity, meaning an activity needs to be proposed and conducted on a commercial scale to be profitable. Your plan to start with 10 bee hives and maintain the ultimate quantity of 20 is considered small scale, lack a profit motive despite the cash flow forecast showing a positive cash flow from the second operating year. This is because:

•                     The forecast doesn't include all the expenses, i.e. occupancy and running expenses of a business;

•                     The forecast doesn't consider the significance of labour cost to the cash flows of a business and its profitability (access to the 'free' labour provided by your family members is not a commercial practice); and

•                     The forecasted honey production per hive seems unrealistic in your circumstances, as even under the favourable weather conditions, the actual production is approximately 60% less than what is forecasted in the relevant period (your profitability is very sensitive to the honey production per hive because of the small scale).

It is difficult to demonstrate that your beekeeping activity operating on XX-XX bee hives is capable of producing positive cash flows/profits if all relevant expenses are properly considered and the honey production is realistically projected in the business forecast.

More than intention to engage in business

This indicator is particularly related to whether the activity is preparatory or preliminary to the ultimate activity. Most of the work you have conducted in relation to land clearing and flora planting is regarded as preparatory for you to resume beekeeping from the previously ceased activity on a larger scale. As you also live on the adjacent property, the undertaken work is considered not exclusively for beekeeping purposes, i.e. clearing tracks for easy access.

However, you have demonstrated more than an intention to engage in business through harvesting honey, selling honey, and receiving money from X harvests.

Prospect of profit

This is a very important indicator highlighted in TR 97/11. You provided the profit and loss of your beekeeping activity, which shows losses for all relevant income years. These losses are losses before factoring in the labour cost in proportion to your time and particularly your spouse' time. There also seems to be an exclusion of a number of occupancy expenses given that you claimed the rates as a deduction. There is no allowance for accountant's fees, insurance, electricity, telephone, internet, and motor vehicle expenses, which are commonly found in deductions claimed by a business. All these expenses will impact on the profitability of your activity that is carried out on a small scale.

Regularity and repetition of the activity

It is often a feature of a business that similar sorts of activities are repeated on a regular basis. You should undertake at least the minimum activities necessary to maintain the commercial quantity and quality of product for sale. Your activity related to producing an income is producing and selling honey. You have so far conducted X harvests, and the honey produced from the harvests is not in commercial quantity, as you indicated that all the honey was sold through your personal networks and there is no supply for you to sell at local farmers' markets and food stores.

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

An activity is more likely to be a business when it is carried on in a manner similar to that in which other participants in the same industry carry on their activities. In considering this indicator, the following factors might be compared with the characteristics of others engaged in the same type of business:

•                     The volume of sales. If there is a small number of sales, it is less likely that a business is being carried on. The volume of sales should be capable of producing a profit at some time;

•                     The types of customers you sell your product to - wholesalers, retailers, the public at large, or friends or relatives - and the manner in which this marketing takes place;

•                     The sort of expenses incurred by you; and

•                     The amount invested in capital items.

As discussed above, you have carried on a small-scale honey production and the volume of sales is in a small number. Your honey product is sold out through your personal networks. Your website provides very limited information in relation to the promotion of your honey product. The 'Contact Us' page is not accessible by the public.

The rates you claimed in the relevant income year accounts for a large proportion to the total deductions, which may leave limited room to record all relevant expenses if a profit or a small loss needs to be demonstrated. The total claimed depreciation suggests that you have not invested in capital items according to your business plan.

Planned, organised and carried on in a businesslike manner

You have demonstrated a planned, organised and businesslike manner in carrying on the beekeeping activity as follows:

•                     Gaining beekeeping knowledge through previous experience and self-education;

•                     Engaging a professional consultant for beekeeping advice and services;

•                     Complying with relevant legal requirements as a registered beekeeper and honey producer;

•                     Developing a business plan, outlining the capital requirement, workforce arrangement, scale of operation, and cash flow forecast; and

•                     Maintaining a book to record money received and expenses incurred.

The size, scale and permanency of the activity

You have established the necessary structure and engaged in the preparatory work to resume the beekeeping activity on a larger scale. Your plan is to operate the activity for a few years.

It seems that the availability of a consultant plays a key role in affecting the permanency of your activity. As you advised, the previous activity ceased due to the departure of the old consultant and the current activity resumed also due to the engagement of a new consultant.

The scale of your activity is considered small as you have maintained only XX-XX bee hives for the relevant ruling periods. Your ultimate goal is to maintain XX bee hives, which still, is on a small scale.

Whether the activity is better described as a hobby

When an activity is better described as a hobby, it is often found that:

•                     Losses are incurred because the activity is motivated by personal pleasure and not to make a profit;

•                     The transaction is isolated and there is no repetition or regularity of sales;

•                     Any activity is not carried out in the same manner as a normal, ordinary business activity;

•                     There is no system to allow a profit to be produced through the conduct of the activity;

•                     The activity is carried out on a small scale; and

•                     Any produce is sold to friends and relatives and not to the public at large.

Your beekeeping activity is better described as a hobby because the activity is carried out on a small scale and there is no system to allow a profit to be produced. Losses are reported in all relevant income years even under the favourable weather conditions. You could have incurred more losses should you conduct the activity in the same manner as a normal ordinary beekeeping business, i.e. incur labour costs and record all relevant expenses incurred for the activity. The quantity of honey produced is constrained by the small scale. Consequently, you don't have honey to offer to the public as distribution through personal networks has consumed all your supplies.

Conclusion

The beekeeping activity that you have carried on for the relevant ruling periods is not a business for taxation purposes. Therefore, the income that you derive from the activity is not assessable under section 6-5 of the ITAA 1997, and the expenses incurred for the activity are not deductible under section 8-1 of the ITAA 1997.

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