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This edited version has been archived due to the length of time since original publication.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 your private ruling

Authorisation Number: 1012063197877

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

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Ruling

Subject: Am I in business

Question

Are you carrying on a primary production business?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ending 30 June 2012

The scheme commenced on

1 July 2007

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In 20XX you developed an idea to plant native trees with a view to commercial harvesting of the timber in future years for the purpose of sale for milling.

Preparation and planting of the trees commenced in 20XX.

You used a 'woodlot' system in an unused paddock on your property of approximately eight hectares.

You contacted the local council and put on record your plan regarding the woodlet.

You followed information provided by the Department of Primary Industries with regards to tree type.

Since 20XX more than two thirds of the paddock area has been planted with an estimate of X,000 native hardwood trees.

You plan to continue planting a further three to four thousand trees in the paddock filling it to capacity.

You aim to commence planting a smaller paddock of approximately 3-4 hectares which should hold in the vicinity of four to five thousand additional trees.

You expect to harvest the trees at 20-25 years of age.

You have permanent outside employment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the tax payer.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

If you are found to be carrying on a business, then the income from your activities will be taxable under section 6-5 of the Income Tax Assessment Act 1997 ( ITAA 1977) and expenses will be deductible under section 8-1 of the ITAA 1997.

If your activity is classified as a business and you sell the property as a forestry plantation the CGT provisions will apply.

As per Taxation Ruling TR95/6 a taxpayer who is engaged in forest operations is a primary producer for income tax purposes if those forestry activities constitute the carrying on of a business.

The term forest operations is defined in subsection 6(1) as:

The planting or tending in a plantation or forest of trees intended for felling; or

The felling of trees in a plantation or forest;

Carrying on a business

Section 995-1 of the ITAA 1977 defines a business as including any profession, trade employment, vocation or calling, but does not include occupation as an employee.

Activities that have a commercial or profit making purpose and are organised in a business-like way will generally amount to carrying on a business.

As per TR 95/6 paragraph 87

In determining whether particular activities constitute the carrying on of a business, courts and tribunals have considered the following elements to be relevant:

    · whether the activities have a significant commercial purpose

    · the scale of the activities

    · the nature of the activities, particularly whether they have the purpose of profit making

    · repetition and regularity of the activities

    · whether the activities are organised in a business-like manner

    · volume of the operations and the amount of the capital employed

    · whether the activities may properly be described as the pursuit of a hobby or recreation

    · the degree of control held by the person over the development and maintenance of the land 

In your case, the following points can be noted regarding these principal factors:

    · You have conducted the activity in a manner to ensure its viability and in accordance with industry standards, have a business plan, conducted strength, weakness, opportunities and threats analysis and have planted a number of trees sufficient for a commercial enterprise. 

    · In view of your particular facts, the Commissioner would view your activities to date as being an activity of carrying on a business. 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.