Does the ATO class you as a primary producer?

Does the ATO class you as a primary producer?

Agribusiness
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You need to pass two tests to qualify for tax benefits for primary production businesses.

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Helen Warnock

Helen Warnock

There are several tax benefits specifically for primary production businesses. To qualify for these you need to pass two tests. Firstly you must be producing primary production income and secondly that activity amounts to the carrying on of a business.

The Taxation Act has a long list of what qualifies as primary production but basically it covers growing plants, keeping animals for sale or milking, fishing and growing and felling timber plantations.

It does not include agisting or leasing land for someone else as well as sharefarming if you are physically involved in growing the crop. You may receive a share of the crop but it is treated as property income the same as rent. If this is the case improvements such as fencing or water improvements would not be a full deduction in the year you spend the money, but deductible as depreciation over several years. You would also not be able to use Farm Management Deposits or average your income.

To test if you are then carrying on a business we need to look at each individual scenario to see if it fits under the tax office guidelines. There are no set limits of turnover or size, it is more related to how you are conducting the business.

There needs to be a commercial purpose to the transactions. You must have started the business not just getting the property ready. There should be a prospect of making a profit from the activity sometime in the future.

The activity needs to be carried on in a businesslike manner and should not be a hobby, a form of recreation or a sporting activity. For example,you could own one stud bull, have a business plan on how you could make a profit on selling his semen and be classed as in business.

Not all primary production businesses make a profit every year. There are non-commercial rules which apply to all types of business to determine if the loss can be offset against other income. These include a turnover test or value of assets used test. You only need to pass one of the tests. The loss deduction is not lost just carried forward to future years when you make a profit or pass one of the tests. These rules are targeted at the smaller businesses.

  • Helen Warnock is a partner at Kennas Chartered Accountants, Rockhampton. This article offers general information only. You should consult your personal adviser to seek advice relevant to your personal circumstances before taking action.
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