Agistment Activities: Business

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Q. I propose to purchase about 20 acres of land which is used for cattle grazing. I will continue to use the land for agistment purposes, although my long-term plan is to subdivide the land and sell the subdivided blocks. Will the agistment activities amount to a business?

 

A. Whether your agistment operations constitute a business is generally a question of fact and law (and possibly Old English law). The following extract from para [22-250] of Thomson Reuters’ Australian CGT Handbook indicates it is possible for agistment activities to amount to carrying on a business in appropriate circumstances:

“Land used for agistment may fall outside the exclusion [for assets used in a business ‘mainly to derive rent’] as under old law “agistment” is the act of taking another’s stock to graze, pasture or feed on land with an implied agreement to redeliver it to the owner on demand: see, for example, Sinclair v Judge [1930] QSR 340. Therefore as the arrangement between the parties is more akin to bailment than a lease the payments may not be regarded as ‘rent’. Further it is possible to carry on a business of agistment (see, for example, AAT Case 10,331 (1995) 31 ATR 1146) – albeit, still the exclusion in s 152-40(4)(e) could be relevant as it applies to assets used in a business ‘mainly to derive rent’.”

The return on the activity may possibly be regarded as rental income. If so, the land may not be an active asset for the purposes of the CGT small business concessions – s 152-40(4)(e) ITAA 1997 excludes assets used in a business “mainly to derive rent”.

Carrying on a business

Whether a business is being carried on is a question of fact to be determined objectively on the specific facts of the case (eg Evans v FCT (1989) 20 ATR 922 at 939; Hart v FCT (2003) 53 ATR 371).

From the many court and tribunal decisions concerning this issue (eg Thomas v FCT (1972) 3 ATR 165, Ferguson v FCT (1979) 9 ATR 873, Hope v Bathurst City Council (1980) 12 ATR 231, FCT v Radnor Pty Ltd (1991) 22 ATR 344 and Spriggs and Riddell v FCT (2009) 72 ATR 148) ,it seems the following factors are particularly relevant – that is, when assessed objectively, their presence indicates a business is being carried on:

  • the person’s purpose and intention as they engage in the activities;
  • the intention to make a profit from the activities, even if only a small profit is made or a small loss incurred. (If a loss is incurred every year for a number of years, however, that suggests the activity may be more of a hobby.) It seems that an intention to make a profit is not of itself sufficient;
  • the size and scale of the activities – they must be in excess of domestic needs, but do not need to be the person’s only activities and can be carried on in a small way;
  • repetition and regularity of the activities – although the expression “carry on” does not necessarily require repetition (see FCT v Consolidated Press Holdings Ltd; CPH Property Pty Ltd v FCT (2001) 47 ATR 229 at 245) and an isolated activity may constitute beginning a business;
  • the activities being carried on in a systematic and businesslike way, as usual for that type of business (eg keeping detailed, up-to-date records and accounts); and
  • the existence of a business plan.

The factors must be considered in combination and as a whole, and no one factor is likely to be decisive: see Taxation Ruling TR 97/11. A person may carry on a business even if they are not actively engaged in the business: Puzey v FCT (2003) 53 ATR 614 at 624; Sleight v FCT (2003) 53 ATR 667 at 682 (decision upheld on appeal in FCT v Sleight (2004) 55 ATR 555).

Even if you are carrying on an agistment business, it is unlikely that it is a “primary production business” within the meaning in s 995-1 of the ITAA 1997. The Commissioner considers a landowner engaged in a primary production business if, under a share-farming arrangement allowing another person to cultivate the land, the landowner is carrying on business in partnership or is directly involved in that business with a degree of control or ongoing participation: Taxation Determination TD 95/62.

 

The above is a discussion only and further advice should be obtained. Please contact our office  on (02) 9954 3843 to discuss your circumstances and to obtain professional advice.

This article is sourced from Thomson Reuters TaxQ&A service.