Edited version of private advice

Authorisation Number: 1052300245785

Date of advice: 18 October 2024

Ruling

Subject: Am I in business?

Question

Is the income you receive from the sale of the standing timber assessable as royalties under section 15-20 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Based on your facts and circumstances, you are not considered to be conducting a business of forestry operations, nor are the proceeds from the sale of the standing timber assessable as ordinary income from an isolated transaction. It is considered that the payments you received are for the right to enter your property and remove standing timber. These payments are assessable as royalties and form part of your assessable income under section 15-20 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Background

You are currently involved in breeding beef cattle and producing cattle. You have properties at location A and Location B which you use for cattle breeding.

Location A is a large property located at a specified address which was acquired through an intergenerational transfer which is used for beef cattle breeding and production, and as a family home. The property includes a section for timbered native growth.

You recently purchased Location B which is about half the size of location A.

Beef Cattle Production

You have been continuing a family tradition of breeding cattle that spans several generations. For commercial cattle sales, you consult your local stock and station agent. You sell cattle to abattoirs when the market is favourable. Your breeding stock is sold at various established annual sale events, with a clientele built through your reputation and previous sales.

You use a cattle management program to record data for each animal, including breed, age, pedigree, treatments, progeny, location, and sale details. You dedicate specified number of hours a day, specified number of days a week, to your cattle breeding and production activities.

You employ a local agronomist for pasture-specific advice and rely on a veterinarian and embryo technician for technical guidance. You also seek additional technical literature and expert advice from the internet and other professionals as needed.

You are members of different professional associations related to Livestock and cattle management.

You have provided inventory data of beef cattle and breeding cattle.

Business Plan

You have provided your business plan with a long-term goal of increasing revenue by enhancing stud sales. To achieve this, you focus on improving cattle preparation for sale, effective marketing, and fostering lasting, quality client relationships. Your business plan also includes a thorough risk assessment and strategies to manage those risks.

Clearing and Selling of Established Timber

You have been progressively clearing established timber from the native timber section of your Location A property. You consulted with the regulatory body to explore your options for managing the timber and to get recommendations for contractors.

You have lodged the required Forest Management Plan for the timber clearing. While selling the felled timber, you are also clearing larger trees to manage termite mounds and allow younger trees to establish better. Additionally, you are arranging for the removal of standing timber along the fence lines between your property and the neighbouring national parks for access and fire safety, with approval from park authorities.

On a specified date, you accepted an offer from Company A to enter your property and handle the felling and selling of tree logs. The contractor used their own equipment for this work.

You have received specified amount for the sale of your standing timber.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 15-20