Hankering for a hobby farm? Have a penchant for a few shimmering vines, or maybe a cluster of Angus cows on green pastures? Maybe you're already "farming". You might see your rural acres as a hobby but your idyllic vision may not be one shared by the ATO if it morphs into a business. Which may not be such a bad thing! Find out whether or not your farm is a business and why it matters.
As you sip a drop from the latest vintage you've crushed with the toes of your family and friends, is it possible that turning these vines into wine has ventured into primary production, and this happy hobby has become a business?
What's the difference between a hobby and a business and how can you tell? Defining "primary production" and "business" is no problem. But just as it's hard to conclusively identify why one wine is better than another, so is figuring out whether or not a business of primary production is being carried on in your particular case.
First, let's look at the definitions. "Business" is clearly defined to include any profession, trade, employment, vocation or calling (other than an occupation as an employee), and "primary production" broadly refers to the following areas of activity:
Although determining whether a business of primary production is being carried on requires both these definitions to be satisfied, neither definition provides a simple test for when the nature and extent of your activities amounts to the carrying on of a business. Fortunately, there are a number of indicators, courtesy of case law, that give some direction.
The ATO emphasises that no one indicator will nail whether a business is being carried on, but it's a matter of weighing up all the relevant indicators in each individual case. It may look and smell like a business but when all the chips are counted it may not stack up.
So, this is not an exact science, but more a forensic approach, in which the individual pieces of evidence are examined, weighed and fitted together to build a case for a hobby or a business.
The indicators explore:
So many questions! Here's another one: why does it matter?
Defining whether you are carrying on a hobby or a primary production business matters because there are tax considerations for both activities, such as the following.
If it's a hobby:
If your hobby becomes a primary production business:
If it's all enough to turn you to drink, come and see us for some expert advice and guidance on the most tax-effective way forward for your farm!
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