When is a business a business?
We have recently seen a surge in the number of AAT cases involving the issue of whether a taxpayer is carrying on a business.
In this case, the taxpayer was unable to demonstrate that he carried on a primary production business.
Facts of the case
The taxpayer owned a 500-acre property located in Queensland. Between 2004 and 2009, he claimed deductions in relation to improvements to the property and other expenses on the basis he was carrying on a primary production business.
He had undertaken 14 different primary production-based activities over the years in question, including free-range pigs, timber growing, storing and breeding cattle, and growing an orchard.
Unfortunately, none of the activities actually generated any income and nor had they involved much more than planning for the commencement of the business.
It was not in dispute that the taxpayer had a genuine intent and belief that he was carrying on a business; evidenced by research associated with the various businesses and the preparation of various business plans.
In this case, the ATO argued that the activities of the taxpayer had not reached the point to be accurately characterised as a business and that the taxpayer was still in the process of preparing to carry on a business.
The AAT confirmed the ATO’s conclusion that the activities of the taxpayer did not amount to carrying on a business and concluded that although the taxpayer had a genuine intent and desire to carry on a business, at best it could be said that he was in the gestation stages of carrying on a business.