Edited version of private advice

Authorisation Number: 1052022188203

Date of advice: 18 August 2022

Ruling

Subject: Primary production

Question

Was the partnership carrying on a primary production business for the years ended 30 June 20XX to 30 June 20XX?

Answer

Yes.

You meet the relevant factors contained in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?. Further information about carrying on a business can be found by searching 'QC 31733' on ato.gov.au.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You, as joint tenants, owned a large parcel of rural land.

For the first X years of the ownership of the land you received income for the agistment of the land to a local cattle farmer.

Since approximately 20XX, you have undertaken a share farming arrangement on the land together with local farmers who are unrelated, where the income and expenses from the farming activity have been split equally with XX percent between you jointly as equal partners and XX percent with the unrelated party.

Initially the joint farming agreement was undertaken with a party for a period of approximately X years.

During the year ended 30 June 20XX you commenced a the share farming arrangement for the planting and harvesting of crops together with a company, where the income and expenses from the farming activity have been split equally with XX percent between you jointly as equal partners and XX percent with the company.

It is understood that the share farming arrangements based on a share of profits were the only means in which you could ensure that the farms usage was maximised.

Crops have been planted on approximately XX% of the land. There is no house on the land.

The remaining land is essentially waste land which is not suitable to growing crops or undertaking other farming activity.

No formal partnership arrangement was initially entered into between the parties.

There were regular active discussions and decisions prior, during and post winter cropping seasons.

The agreement between the parties were verbal and entered in good faith.

A memorandum of understanding was prepared and signed during the year ended 30 June 20XX between the parties as evidence of the agreement between the parties.

The agreement acknowledges that all decisions regarding the farming activities are made together, between the parties, prior to, during and post cropping for each season including decisions regarding:

•         crop type

•         agronomic systems and aspects

•         timings

•         tillage

•         sowing

•         markets

•         pricing

•         customer-type

•         crop rotation

•         yield

•         by-product (hay, straw)

•         harvest

•         storage, and

•         delivery.

The memorandum acknowledged that all input and costs/expenses and income has been split on a

XX/XX basis between you and the other company.

Further it is acknowledged that expenses are agreed to prior to any payments between the parties.

The agreement also acknowledges all the risks associated with the farming activities regarding the cropping resulting from climate conditions, which dramatically impact the timing, emergence, growth, yield and quality of the crop and accordingly the profit from the activity.

In addition to being involved in the decision making of the farming activities, over the period of ownership, you attended the property to undertake the following activities:

•         fencing, repair, and construction

•         weed control

•         fire prevention on the land

•         water maintenance of three dams

•         shearing shed maintenance

•         mechanical repairs/equipment

•         mowing of the grassed areas

•         investment in creating 'raised beds' to improve paddock drainage and enhance crop productivity

•         tree planting, and

•         rabbit control.

Other activities undertaken regarding the operation of the farming activities included attending to account keeping, property insurance and security.

You prepared and lodged the Business Activity Statements.

You were not directly involved in the planting or harvest of the crops as the physical labour of the planting was to be provided by the company as a part of the agreement.

Out of your own partnership, one partner takes considerable interest in the farming activity including monitoring the prices of certain crops and considering which crops to plant.

Whilst you are not involved in the manual labour associated with the operation of the farming activities, you are involved in determining together with the company, core decisions associated with the farming activity, including which crops will be planted.

None of the share farming arrangements or income received under the share farming agreements included a payment of rent of the land.

Your share of the farming activity has been recorded through your own partnership. An Australian Business Number and Tax File Number has been registered for the partnership and the partnership has been registered for Goods & Services tax (GST).

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1(1)