Private ruling: Non-commercial losses and the Commissioner's discretion
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2008

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your primary production activity in the calculation of your taxable income for the 2012-2013 financial year? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: · you meet the income requirement and you pass one of the four tests · the exceptions apply · the Commissioner exercises his discretion. In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. The relevant discretion may be exercised for the income year in question where: · it is in the nature of your business activity that there will be a period before a tax profit can be produced · there is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry. In your case, you are operating an established farm which has already proven to be commercially viable. Therefore, the Commissioner can not exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your business 2012-13 financial year as the commercially viable period has expired.

Relevant facts: You and your spouse operated a primary production business until their death in 200X. | You continue operating the farm as a sole trader. | You declared a profit from the activity in the 2007-08, 2008-09,2010-11 and 2011-12 financial years. | Due to the decrease in value of animals during the 2012-13 financial year and poor market conditions, you sold less animals during the year than you would normally have done. Consequently, you made a loss during the year. | You are planning to sell the animals in the 2013-14 financial year and expect to make a profit in that year. | You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2012-13 financial year was more than $250,000.