There can be enormous tax benefits in earning primary production income including income averaging, Farm Management Deposits, Capital Gains Tax and Duty advantages.

Is the owner (or lessor) of land who allows the land to be used in a sharefarming agreement engaged in a business of primary production? 

Taxation Determination TD95/62 deals with this question and provides as follows:

To be carrying on a business, the taxpayer must be involved in the activities that make up that business. This would be evidenced by an element of control over, and/or an ongoing participation in, the business. The involvement should be direct or immediate, rather than passive. The payment of expenses relating to the ownership of the land would not, without more, be sufficient.

In the absence of such an involvement, the landowner would not be regarded as being engaged in the business of primary production. 

In a Private Ruling made on 6 July 2000, the basic facts were:

1. The landowner maintained the property, helped spread soil conditions and supplied some labour to expediate cropping process. 

2. The sharefarmer grew the crops, harvested the crops and purchased soil conditions. 

3. The parties jointly decided the cropping area, use of chemicals and fertilizers.

4. The landowner received payment in form of 20 percent of the grain harvest. 

In the above Private Ruling, the Commissioner determined that the landowner was not carrying out the activity of farming and this view was confirmed by the sharefarming agreement, which listed the growing, harvesting and insurance of crops to be the sharefarmer’s responsibility. The Commissioner stated that the payment of rent in the form of 20% of the grain harvest has the nature of a landlord earning passive income, it in no way indicates that the landowner took part in carrying on the business activity. 

It is clear that for the income of a landowner (or lessor) from the sharefarming to qualify as primary production income, the landowner would have to be actively involved in the farming.  This may include being involved in deciding about the crop area/rotation, the application of chemicals and fertiliser and undertaking matters such as the spreading of lime, fertiliser and urea with their own machinery and labour, conducting soil tests, picking rocks and completing fire breaks. 

The more active the landowner (or lessor) involvement, the more likely that the income generated will be primary production income. 

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