Across the country, many individuals, trust or companies may be involved in a business that deals with primary production. These are primary producers involved in businesses undertaking plant or animal cultivation, fishing or pearling, tree farming or felling operations.

Over the last few years, numerous challenges have arisen that primary producers have had to meet. From fires, floods and COVID-19, there have been exacerbating stress factors on top of the usual of running their commercial operations. Ensuring their taxable obligations are not one of them is our role as their adviser.

The taxable obligations of one involved in primary productions need to consider whether or not the activity is a business of primary production, as outlined in the Australian Taxation Office’s Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?

The indicators which suggest that a business is being carried on (under the ruling) include:

• That it is a significant commercial activity
• Purpose and intention of the taxpayer in engaging in the activity
• An intention to make a profit from the activity
• Activity is organised and carried out in a business-like manner and systematically
• Records are kept on the activity’s goings-on.
• A business plan exists
• There are commercial sales of the product.

Things To Consider (Obligations & Benefits)

Small Business Concessions

If your business could be considered involved in primary production and you are a small business entity, you may be eligible for small business entity concessions. This eligibility will need to be reviewed every tax year, with all conditions that apply to particular concessions being satisfied.

For example, if you are a primary producer and would be a small business entity if the aggregated turnover threshold was less than $50 million, you can choose to immediately deduct prepaid expenses.

Simplified Depreciation Rules

You may be able to apply simplified depreciation rules to your depreciating assets when calculating deductions. These rules include:

• An instant asset write-off for assets that cost less than the relevant threshold
• A general small business pool for assets that cost the same or more than the relevant threshold, which has simplified calculations to work out the depreciation deduction

If you choose to use simplified depreciation, the temporary full expensing rules with some modifications will apply. This temporary full-expensing for assets cannot be opted out of when applying simplified depreciation rules.

Simplified Trading Stock

Small business entities only need to conduct stocktakes and account for changes in the value of trading stock in limited circumstances.

For example, oyster farmers must account for oysters on hand as trading stock (including oysters held on sticks or trays or harvested and ready for sale). The farmers can choose to value their trading stock on hand at the end of the income year at cost, market selling value or the replacement value. They may also (if using the traditional stick farming method) use the ‘per stick’ farming method of valuation.

If you are involved in primary production as a business owner, you may have additional tax consequences and obligations that we can assist you with. Start a conversation with us today.