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Edited version of private advice
Authorisation Number: 1052094328962
Date of advice: 6 March 2023
Ruling
Subject: Whether the company is considered carrying on a primary production business
Question
Is the Company carrying on a primary production business as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997?
Answer
Yes.
A 'primary production business' is defined in subsection 995-1(1) of the ITAA 1997, the definition includes a business of cultivating or propagating plants or fungi an any physical environment.
Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? (TR 2019/1) outlines the Commissioner's view as to whether a company is carrying on a business for the purposes of accessing the small business entity tax rate.
TR 2019/1 states that whether the activities of a company constitute carrying on a business is a question of fact and must also consider the Company's circumstances and activities, having regard to the indicia of carrying on a business.
TR 2019/1 further considers that companies have an underlying commercial nature, and as such, the same activities carried on by a company are more likely to amount to the carrying on of a business than if they were carried out by an individual or a trust. Whether a company's activities have a purpose of profit is critical in determining whether it is carrying on a business.
The Commissioner is satisfied that the activities undertaken by the Company constitute carrying on a business as it demonstrates the required purpose and prospect of profit, along with the character of repetition and regularity. Its business of cultivating plants for sale also satisfies the specific definition of a primary production business.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The Company commenced carrying on a business in 20XX-XX financial year.
Person A is the Director of the Company.
The Company has a registered trading name.
The Company has entered into a lease agreement for the parcel of land it uses that was purchased by a related entity.
The Company has a number of dome greenhouses on the property and has installed water tanks as well as an irrigation system to water the plants.
There is a separate shed on the property used to prepare stock for posting to its customers.
Person A has a laboratory where they can breed hybrids of plants.
The Company has a website where all stock is advertised for sale. The Company uses an external provider for the website maintenance.
The Company intends to open a retail store on the property as they keep expanding the business.
The Company sales are increasing from year to year.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 995-1(1)