Income tax: are bees kept for use in a honey production business trading stock as defined in section 70-10 of the Income Tax Assessment Act 1997?
Yes, bees kept for use in a honey production business are trading stock as defined in section 70-10 of the Income Tax Assessment Act 1997 (ITAA 1997) [1] because they are livestock.
This Determination applies to years of income commencing both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).
Appendix 1 - Explanation
Section 70-10 states that trading stock includes: (a) anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business; and (b) live stock.
The use of the word 'includes' in the definition of trading stock in section 70-10 signifies that a thing may be trading stock for the purposes of the provision if it meets the requirements in paragraphs 70-10(a) or 70-10(b) or is otherwise trading stock within the ordinary meaning of that term. [2]
The term 'live stock' is defined in subsection 995-1(1) to 'not include animals used as beasts of burden or working beasts in a *business other than a *primary production business'. [3] The High Court in Federal Commissioner of Taxation v. Wade [4] considered this definition of 'live stock' when it was then found in subsection 6(1) of the Income Tax Assessment Act 1936. Dixon and Fullagar JJ stated that the definition, by inference, makes it clear that all animals used in a primary production business are included as live stock. [5]
Bees, being insects, are animals. [6] Paragraph (b) of the definition of 'primary production business' in subsection 995-1(1) includes as a primary production business a business of 'maintaining animals for the purpose of selling them or their bodily produce (including natural increase)'. Honey is the bodily produce of bees. [7] A business of keeping bees for the production and sale of honey is a 'primary production business' as defined in subsection 995-1(1) and the bees kept for use in that honey production business are live stock.
As bees kept for use in a honey production business are live stock, they are trading stock as defined in section 70-10. [8]
Compendium
The ATO published responses to 4 submissions on this ruling in TD 2008/26EC. Outcome labels are heuristic — read the ATO response for the detail.
1As a matter of practical reality it is not possible to count the number of bees on hand at any point in time.accepted
ATO response
The Tax Office has developed Law Administration Practice Statement PS LA 2008/4 (General Administration), after consultation with the Australian Honey Bee Industry Council, that provides guiding principles on what the Commissioner considers is an acceptable practical methodology for valuing bees held as trading stock. PS LA 2008/4 (GA) which has effect from 1 July 2008, provides that the Commissioner will accept: • the use of a live hive of bees as the unit of measurement for valuing bees on hands at the end of an income year • if the cost method is used, the cost of a queen bee in a live hive represents the cost of a live hive on hand at the end of an income year, and • the use of $9 (being the average industry cost of a queen bee as advised by the industry) as an estimate of the cost of a queen bee for a hive.
2Does the Tax Office currently require keepers of other animals such as butterflies to treat them as livestock?response provided
ATO response
The conclusions reached in the Taxation Determination apply equally to other types of animals used in a business of primary production.