Edited version of private advice

Authorisation Number: 1051648583725

Date of advice: 27 March 2020

Ruling

Subject: Primary production

Question

Is the farming activity that forms part of your business a primary production business activity such that the partners are entitled to access the accelerated depreciation provisions contained in Subdivision 40-F of the Income Tax Assessment Act 1997 (ITAA 1997) for certain primary production depreciating assets?

Answer

Yes. The farming activity that forms part of your business constitutes a primary production business activity as it involves the cultivating or propagating of plants (see the definition of 'primary production business' in subsection 995-1(1) of the ITAA 1997). Therefore, certain depreciating assets used in the farming activity may qualify for accelerated depreciation under Subdivision 40-F of the ITAA 1997. Further information about primary production depreciating assets can be found by searching 'QC 58646' on ato.gov.au

Note: Although the farming activity part of your business is a primary production activity, the income from beer sales is not considered to be primary production income and therefore this income does not qualify for primary production averaging.

This ruling applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a partnership that operates a farm brewery on your XX acre property.

Your plan is to stand out in the crowd of micro-breweries as an innovative "Paddock to Pot" or "Soil to Scooner" by growing your own organic crops that are used in your brewery.

You have planned over many years to become a sustainable farm brewery by carrying out intensive research trials on old varieties of cereal crops that are suited to your climate using organic growing techniques and working closely with a seed bank.

You currently have a rotational cropping program covering XX acres. Crops include maize, barley, wheat and oats. Your crop farming involves:-

·   Planting crops usually commences in autumn.

·   You only use organic fertilizers on your farm.

·   Planting continues through to spring with maize being the last crop planted in late October.

·   Harvesting starts in mid-summer with oats first, followed by barley, wheat and lastly maize.

·   Oats, barley and wheat are stored in your granary for use in your brewery operations.

You have an orchard of approximately XX trees that include cherries, apples, plums, walnuts and berries. The produce from your orchard is harvested by hand and is either used immediately in the brewery or frozen to be used at a later date.

You have a hop garden with X varieties being grown.

·   Hops are handpicked and then dried using air dryer and then vacuum packed and frozen ready for use.

·   Green hops are used in some of your brews.

·   Your latest harvest provided excess to your requirements and you were able to sell to another brewery.

·   You plan is to increase the size of your hops garden with additional varieties; this will require additional infrastructure for the vines to grow on.

You have an apiary for honey to be used in your brewery and the bees help pollinate your crops/orchard.

The partners work full time in your business of farming and brewery operations completing the entire farming process for the crops grown and used in your brewery.

In the 20XX-XX income year you produced XXXX litres from your crops which is 27% of your total production.

In 20XX-XX income year you produced XXXX litres from your crops which is 49% of your total production.

In 20XX-XX income year you have produced XXXX litres so far from your crops which is 57% of total production.

You still buy malted barley and some apple juice, but you plan on producing your own malted barley.

You sell the final product at local farmers markets and sell kegs to cafes, local restaurants and hotels.

Your supply is currently not meeting demand and to expand your farm brewery business you need to put more of your farm under crop or lease land nearby to expand your cropping operations.

Your future plans to expand your farming operations will require additional harvesting/sowing equipment, irrigation systems and fencing.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 40-F

Income Tax Assessment Act 1997 Subsection 995-1