Primary production and regional Australia

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Primary production – not a 'hobby' |  Specific concessions

We may no longer ride on the sheep's back, but the traditional economic backbone to Australia's prosperity, the nation's vast regional expanses, continue to be of crucial importance to Australia's fortunes, especially when it comes to exports of grain, wool, beef, seafood and wine. And of course there are the enormous contributions that resources and minerals continue to give to the country.

Regional Australia has consistently kicked in more than 60% of the nation's export revenue in recent years, and the non-capital city areas continue to share the benefits of measures such as the one-off $50 million payment to the Export Market Development Grants scheme and continued flood and disaster assistance.

Primary producers also have access to the same tax concessions that are available to other small businesses, and for the many smaller primary production concerns the continuing access to small business tax concessions for operations that turnover less than $2 million a year (which is a level of business that many primary producers will operate in).

The term 'primary producer' is pretty well universally known, but the Tax Office further spells this out to cover plant cultivation (including fungi, seeds, bulbs and so on), animal cultivation (for meat, but also 'bodily produce' and 'natural increase'), fishing (including shellfish and other commercial species) and tree farming and felling.

Primary production – not a 'hobby'
Getting access to the tax concessions that are available for primary producers requires more than gumboots, acreage and Akubra. You need to be able to show that you are actually carrying on a productive business, with sound business principles and a commercial intention.

That's not to say that you have to be making loads of money from it (we all know how tough the farmers have had it the past decade); but it has to be more than a hobby that you do outside of your 9-to-5.

The proliferation of 'hobby farms' has led to the testing of several bona fides through the court system, and factors considered in these cases to determine whether there is in fact a business have included:

• is there repetition and regularity of activity?
• is there a profit or a genuine belief in eventual profit?
• is the operation conducted in a similar way to others in the same industry?
• are records being kept?
• does the operator have appropriate knowledge or skill?
• can the activity be better described as recreation?

A true primary production business can be one of several business structures, and subject to most of the taxation and other obligations – and rights – that other businesses deal with.

There is access to research and development tax concessions if you are eligible, as well as the other usual tax deductions and concessions that business has available. Fuel tax credits may play an important role in a primary producer's tax planning for instance. The cost of installing a telephone line to property used for primary production can be written off in equal instalments over 10 years, and this includes the cost of a radio telephone where installing a landline is impossible or too expensive.

Furthermore, a primary producer will need to look at issues regarding capital gains tax, goods and services tax and the depreciation of assets, just like every other business enterprise.

Specific concessions
A primary producer has access to several concessions that other businesses do not, such as being able to 'average' income over a few years so that tax payable on income is evened out over time and not subject to the sometimes wild fluctuations in rural fortunes. There is also a farm management deposit scheme that allows pre-tax dollars from good years to be deposited as an investment, and then used in bad income years (see member section for more on these).

There are tax deductions that only primary producers are able to claim, as well as being able to write-off certain establishment costs. There can also be 'exceptional circumstance' relief payments that primary producers will generally have access to should these circumstances arise.

Reviewed July 18, 2012