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Edited version of your written advice
Authorisation Number: 1012748591902
Ruling
Subject: Fishing lease income and share fishing agreement
Questions and Answers:
1. Is your income derived from the leasing of seafood licences treated as non-primary production income?
Yes.
2. Does entering into a share fishing agreement whereby you provide the seafood licences and another party the boat and fishing services result in your percentage of the agreement income being treated as primary production income?
No.
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You own seafood licence zones, which you lease to local fishermen.
Prior to leasing the licences, you fished with the zones, producing primary production income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 392-80
Reasons for decision
Subsection 392-80(2) of the Income Tax Assessment Act 1997 states your assessable primary production income for the current year is the amount of your basic assessable income for the current year that was derived from, or resulted from, your carrying on a primary production business.
Taxation Determination TD 95/62 is about the owner (or lessor) of land who allows the land to be used in a sharefarming arrangement. It states at paragraphs 5, 6 and 8:
To be carrying on a business, the taxpayer must be involved in the activities that make up that business. This would be evidenced by an element of control over, and/or an ongoing participation in, the business. The involvement should be direct or immediate, rather than passive. The payment of expenses relating to the ownership of the land would not, without more, be sufficient.
In the absence of such an involvement, the landowner would not be regarded as being engaged in the business of primary production. The receipt by the landowner of a payment from the farmer for the use of the land would be in the nature of income from property rather than from the carrying on of a business of primary production.
Example 1: Sharefarmer Y agrees to pay to landowner X a designated share of crop proceeds in consideration for use of the land owned by X. X does not participate in the cultivation of the land. Only Y involves himself in the farming activities. Y would be considered to be engaged in a business of primary production. The share of crop proceeds received by X is not considered to be income from primary production. It is not personal exertion income and would in essence be income from property.
In your case, the principles in TD 95/62 apply to your share fishing agreement. Here, your provision of mere licences under the arrangement would be passive in nature and thus result in your income derived being lease (rental) income from property rather than primary production income from the carrying on of a business of primary production.