What defines an activity as a business?
To determine the definition of ‘carrying on a business’ the Australian Taxation Office (ATO) uses case law. This means there is no conclusive test but a list of indicators, which are used to determine if the activity is classified as a business or not.
| Indicators a business is being carried on | Indicators a business is not being carried on |
|---|---|
| Significant commercial activity | Not a significant commercial activity |
| Purpose and intention of the activity | No purpose or intention of the activity |
| Intention to make a profit | No intention to make a profit |
| The activity is or will be profitable | The activity is inherently unprofitable |
| Repetition and regularity of activity | Little repetition or regularity of activity |
| Activity is carried on in a similar manner to ordinary trade | Activity carried on in an ad-hoc manner |
| Activity organised and carried on in a business-like manner and systematically - records kept | Activity not organised or carried on in a business-like manner - no records kept |
| Size and scale of the activity | Small size and scale |
| Not a hobby, recreation or sport | A hobby, recreation or sporting activity |
| A business plan exists | No business plan |
| Commercial sales of product | Sale of products to relatives and friends |
| Taxpayers knowledge or skill | Lack of knowledge or skill |
None of the indicators is decisive on its own. The ATO consider all of the indicators in combination to determine an overall impression of the activity and the intent of the operation.
What is primary production?
For the purpose of the Tax Act, a primary production business must produce primary production under one of the following categories:
- cultivation of land
- maintenance of animals for the purpose of selling them or their bodily produce
- fishing operations
- forest operations
- horticulture.
A taxpayer does not need to derive all of their income from the primary production activity to qualify, so they may also be employed in some other occupation or profession.