Farm Business or Hobby? Tax Questions for Rural Properties

A guide to business indicators, deductions, losses, GST and record keeping for small-scale rural activities

A couple buys a rural property, keeps a few cattle, sells some produce, purchases equipment and gradually begins referring to the property as “the farm”. At tax time, they ask whether the fencing, tractor, feed, rates, insurance and interest can be claimed. The answer does not depend on what the property is called.

A few animals, some sales and a tractor do not automatically create a farming business. Equally, a small activity can be a genuine business where it is organised and conducted commercially.

Whether based down in the Yass Valley, across the South Coast or Southern Highlands, up through the Hawkesbury and Hunter regions, or even as far inland as Mudgee, rural properties often combine a family home with livestock, produce, agistment or accommodation. The pattern exists nationally. Acreage rarely settles the tax questions.

The question is not whether the property looks like a farm. It is whether the activity is being carried on as a business.

If an activity is genuinely a private hobby rather than a business or another income-producing activity, receipts incidental to that hobby are generally not assessable income and related costs are not deductible. There is no deductible business loss to carry forward from the hobby, and a private hobby does not ordinarily create GST obligations. Separate receipts or transactions, such as rental income or the sale of land, may nevertheless have their own tax consequences.

Begin with the activity, not the acreage

A small property can support an intensive market garden, nursery, beekeeping operation or other commercially organised activity. A much larger property may be held mainly for private recreation, lifestyle or long-term investment.

The starting point is to identify exactly what the owner is doing. Relevant questions include:

What is being produced, grown, raised or supplied?
Is there a genuine market and a practical way to reach customers?
How regular are production and sales, and what income is reasonably expected?
Are suitable land, labour, equipment and infrastructure available?
How is the activity separated from the family’s private use of the property?
Has the commercial plan moved into actual operation?

Buying rural land with the hope of earning income one day is not necessarily the same as commencing a business. Research, planning, land preparation and asset purchases may occur before business operations have begun. The timing matters because it can affect the treatment of expenditure and losses.

What points toward a business?

There is no single test that converts a rural activity into a business. The Australian Taxation Office considers the overall circumstances and a group of commonly recognised indicators.

These include commercial purpose, profit intention and a reasonable prospect of profit. Repetition, scale, permanence and similarity to comparable businesses matter. Marketing, customers, records, systems and the investment of time, labour and capital may also be relevant.

Actual conduct is particularly important. A business plan may support the position, but what the owner does over time will usually be more persuasive than how the activity is described.

Regular production, advertising, customer records, pricing reviews and operational changes all support a commercial picture. Occasional surplus sales without regular marketing or a credible path to profit may point differently.

An ABN, business name, separate bank account or formal structure may demonstrate organisation, but none settles the question. A company or trust does not turn a private activity into a business.

Small scale and early losses

Small scale does not automatically mean hobby. Many legitimate businesses begin modestly, and some rural activities need time before they can generate a profit. Orchards, vineyards, livestock breeding and other production systems can have lengthy establishment and production cycles.

A period of loss is not conclusive. However, repeated losses without a realistic response may weaken the commercial picture. It is reasonable to ask whether the owner has reviewed production capacity, pricing, demand, stocking or planting decisions, costs and marketing. At its present or planned scale, is there a credible way for the activity to produce a profit?

Making a loss does not necessarily mean there is no business, but a commercial business should ordinarily have a credible path toward profit.

Business, primary production and profitability are different questions

Three ideas are often combined when they should be considered separately:

Is a business being carried on?
Is that business a primary production business?
Is the business currently profitable?

A person can carry on a business that is not primary production. Likewise, an activity can be a genuine primary production business and still make a loss in a particular year.

Broadly, a primary production business may involve cultivating or propagating plants, maintaining animals for sale or for the sale of their bodily produce, fishing or pearling operations, or tree farming and felling. Classification depends on the actual activity, not merely its rural location.

Raising livestock for sale may be different from keeping animals mainly for recreation. Growing produce for customers is different from maintaining a private garden. Agistment, farm-stay accommodation, events, equipment hire, contracting and leasing land may be businesses, but they are not automatically primary production activities.

This distinction matters because particular tax rules and concessions apply only to qualifying primary producers. It should be checked against the complete facts rather than assumed from the property description.

State land-tax exemptions and council rating categories have their own definitions and eligibility tests. In NSW, for example, a primary production land-tax exemption involves land-use requirements and, in certain cases, additional commercial tests. A conclusion reached for income-tax purposes does not automatically decide those separate questions.

Income and deductions need to be considered separately

The business-versus-hobby question is important, but it is not the only tax question. The nature of each receipt and expense still needs to be considered.

Potential receipts include livestock and produce sales, agistment, accommodation, contracting, grants, insurance recoveries, rent, equipment sales and environmental payments. An irregular receipt is not automatically outside the tax system because the activity is small. Asset sales, grants and property income can each have their own treatment.

For expenses, the general starting point is whether the cost has a sufficient connection with earning assessable income or carrying on the business. Private and domestic costs are not deductible, and capital expenditure is not generally claimed as an ordinary operating expense. Specific rules may instead provide a deduction over time or a different treatment.

Common operating costs may include feed, animal health expenses, seed, fertiliser, contractors, fuel, freight, marketing, insurance, bookkeeping and repairs. Their treatment depends on purpose, timing, commencement, private use and whether an asset was created or improved.

Establishment and development expenditure needs particular care. Soil testing, earthworks, dams, irrigation, fencing, sheds, planting, livestock, machinery and professional fees do not all receive the same treatment. A cost may be deductible, decline in value, qualify under a specific provision or form part of an asset’s cost.

Current tax law includes specific provisions that may assist eligible primary producers with certain water facilities, fencing, fodder-storage assets and landcare expenditure. These rules are not a blanket deduction for rural improvements. Eligibility, timing, business use and the nature of the expenditure must still be checked.

A genuine business loss may still be deferred

For an individual, there are two separate questions:

Has the activity produced a deductible business loss?
Can that loss be offset against salary, investment income or other income in the current year?

Division 35 applies to individuals carrying on business activities, including through partnerships. Companies and trusts are subject to different loss rules.

The non-commercial loss rules may prevent an individual carrying on a business, either alone or in partnership, from immediately applying a business loss against other income. This does not necessarily mean the activity is a hobby or that the loss disappears. The loss is generally deferred and may become available against future income from the activity, subject to the rules.

As at 11 November 2026, an individual generally needs to meet the non-commercial loss income requirement, which broadly adds taxable income (ignoring relevant business losses), reportable fringe benefits, reportable superannuation contributions and total net investment losses. The total must be less than $250,000. The business activity must also pass at least one of four statutory tests relating to assessable income, past profits, real property or other assets, unless a relevant exception or the Commissioner’s discretion applies.

A limited exception may apply to an individual carrying on a qualifying primary production business, including as a partner, where assessable income from sources unrelated to that business is less than $40,000, excluding any net capital gain. This is not an exemption for anyone who simply describes themselves as a small farmer. The primary production business and other statutory conditions must be established.

Simplified example: genuine business, deferred loss

An individual operates a genuine livestock activity and also earns substantial employment income. The activity records a tax loss during an establishment year.

The conclusion that a business exists does not automatically allow the loss to reduce the individual’s employment income. The income requirement, statutory tests, exceptions and possible discretion need to be considered separately.

GST is another separate question

Business status does not automatically mean compulsory GST registration. The GST rules consider whether an enterprise is being carried on and the enterprise’s current and projected GST turnover.

As at 11 November 2026, the general compulsory GST registration threshold for most enterprises is $75,000 in GST turnover. An enterprise below the threshold may be able to register voluntarily, but registration should not be treated simply as a way to recover GST on setup costs.

The GST treatment of rural income can be mixed. Some qualifying food may be GST-free, while produce, livestock, agistment, accommodation, equipment hire and services can differ. Purchases may have business and private use. Asset sales and changes in use can create further consequences.

Before registering or claiming input tax credits on substantial establishment costs, the owner should confirm that an enterprise exists, identify the intended creditable use and consider whether later adjustments may be required.

Three simplified rural-property examples

These examples illustrate the questions to ask. They do not determine whether any particular reader is carrying on a business.

1. Lifestyle property with occasional sales

A couple owns 15 acres, keeps several cattle and occasionally sells an animal. Most of the property is used as their home and for recreation.

The sales are relevant, but not decisive. Repetition, commercial scale, planning, marketing, records and a credible prospect of profit all matter. Private property costs cannot simply be relabelled as farm expenses.

2. Small but organised market garden

An owner cultivates a relatively small area, sells produce weekly, advertises regularly, keeps customer and production records, and changes planting decisions in response to demand.

Limited acreage does not prevent business status. The regular, organised and market-facing conduct supports a commercial character, but the full circumstances still require review.

3. Several activities on one property

A rural property combines livestock production, agistment and short-term accommodation. The family also lives on the property.

Each activity may have a different income-tax and GST character. Shared costs need a reasonable allocation, and ownership of the land, livestock, accommodation operation and equipment should be documented.

Records should tell the commercial story

Good records do more than total the year’s receipts and expenses. They help demonstrate how the activity has actually been organised and conducted.

Useful records may include:

a business plan, budgets and forecast support;
production, planting, stocking and livestock records;
customer, supplier, sales and marketing records;
contracts, agistment agreements and grant documents;
a separate bank account and clear bookkeeping records;
an asset register and finance documents;
vehicle, machinery and equipment-use records;
maps, metering or support for business-use percentages;
calculations for private use or produce taken from stock;
records of decisions made when performance differed from the plan.

Most business records generally need to be retained for at least five years, although some must be kept longer. Property, capital expenditure, cost-base and carried-forward loss records may remain relevant well beyond that period.

Records cannot transform a private activity into a business. They can, however, support the position where the owner’s actual conduct is consistent with the commercial story shown in the documents.

Questions to ask before claiming the farm expenses

Before treating a rural activity as a business for tax purposes, ask:

What is the specific income-producing activity?
When did active business operations commence?
What evidence shows a genuine market and credible path to profit?
Do the owner’s actual conduct, systems and records match the business plan?
Is the activity primary production, another type of business, or a mixture?
Which expenses are operating costs, capital costs or private costs?
How will mixed property and asset use be apportioned?
If there is a loss, do the non-commercial loss rules defer it?
Does the activity require or justify GST registration?
Who owns the land, livestock, equipment and operating activity?

A rural activity can evolve. A hobby may become a business as its scale, organisation and commercial conduct develop. A business may also become private or cease altogether. Tax treatment should be reviewed when the facts change, rather than relying indefinitely on the conclusion reached in the first year.

Operating or developing a small farm or rural business?

Unsure whether your rural activity qualifies as a business, or how the tax rules apply to your property?

Compact Accounting can help review business indicators, primary production activities, deductions, GST, non-commercial losses and record-keeping requirements based on your circumstances.

Property transactions, legal, lending and financial-product matters may require advice from appropriately qualified specialists.

General Information Only

This resource provides general information and does not constitute personal taxation, accounting, legal, financial product, investment or lending advice. It does not take into account your particular circumstances.

Tax outcomes depend on the relevant facts, applicable law and timing. You should obtain appropriately qualified professional advice before acting or refraining from acting on this information.

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References & Further Reading

Last Reviewed: 11 November 2026