Edited version of private advice

Authorisation Number: 1012643693214

Ruling

Subject: Whether you are carrying on a business of livestock breeding

Question

Do the intended commercial breeding activities of the entity amount to the carrying on of a business for income tax and thus it: (a) includes its gross proceeds as assessable income pursuant to Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997); and (b) can deduct all of its non-capital outlays and other expenses pursuant to Section 8-1 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

The scheme has commenced

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

Business Plan and revised Business Plan

Financial Projections and Revised Financial Projections

Responses to the request for further information

The entity conducts the breeding activity on a property that has suitable facilities.

The key personnel have always had a keen interest and passion for livestock breeding and racing industry and acquired the property with a view to future livestock breeding. You have access to a number of consultants who are well versed in all aspects of the industry.

You have acquired a number of animals for the purpose of breeding and selling the offspring.

Some of the animals were purchased to recognised animals, so as to get a cash-flow sooner into the cycle. You have spent in excess of $100,000 on livestock.

You received an insurance payout for the animal that died.

You have sold your half interest in the one animal available for sale.

You have had the animals serviced when they were due for a service.

Your financial projections indicate that you should be able to make a profit in the near future. All animals have a sound breeding history, but a X% reduction in sales and variable costs has been factored in to allow for an animal not producing each year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Taxation Ruling TR 97/11 provides the Commissioner's view of the factors used to determine if you are in business for tax purposes. In the Commissioner's view, the factors that are considered important in determining the question of business activity are:

• whether the activity has significant commercial purpose or character (this comprises aspects of some of the other indicators)

• 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

• whether there is repetition and regularity of activity

• whether the activity is similar in kind and manner to those of the ordinary trade in that line of business

• whether the activity is planned, organised and carried on in a businesslike manner directed at 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 a sporting activity.

We consider below the relevant indicators from TR 97/11 in the context of your activity.

You have more than an intention to engage in a business. A suitable property has been acquired by a related entity. Improvements have been made to the property to provide all the facilities required to conduct this activity. You have commenced the activity with the purchase of a number of animals.

You have developed a substantial business plan to cover all aspects of the activity and your forecast financial statements show the potential to make a profit, based on deriving income from the sale of offspring.

The activity is carried on in a similar manner to those in the ordinary trade. You have sold the one animal available for sale. The business plan and steps taken so far, indicate that the activity has been carried out in a business-like manner, with the view to making a profit.

The scale of the activity is sufficient to indicate that you have the potential to make a profit.

Substantial records of both a financial and breeding nature have been kept. You appear to have developed a good knowledge of the industry and have support through consultants who have a thorough knowledge of all facets of the industry.

The overall impression is that the activity has a significant commercial purpose. You would be considered to be carrying on a business.