Private ruling: Non-commercial losses - lead time
Date of advice: 20 March 2024
Published: 29 April 2024
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Will the Commissioner exercise his discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in the calculation of your taxable income for the 20YY-YY to 20YY-YY financial years? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted there is a 'lead time' in the nature of your business activity and you will make a tax profit within your industry's commercially viable period. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You are a sole trader. You do not satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You commenced your business in March 20YY on an existing property in rural Australia. You commenced preparation of the business in March 20YY and began planting the trees in September 20YY. This preparation included the following undertakings: - Market research for the industry - Research of the product - Research of industry risks and how those risks may be mitigated, - Consultation with industry experts. Consulted experts have concluded that the property will be favourable for growth of the product. You have obtained a water license and installed pumps and irrigation systems for the property. You have undertaken soil reports and planted a number of trees to date, with more trees to be planted in future years. You and your spouse manage the business, with other staff to be employed on a seasonal basis once the business becomes more established. You will work an average of 20-25 hours a week on this business, which will increase as the business become more established. The plantation will take 6-10 years, contingent on local conditions, to reach full production. Full production will produce a minimum of 100kg per hectare, to a maximum of 400kg per hectare, contingent on growing conditions. You have a business plan that outlines that the activity will be viable in the area and observe a tax profit in the industry standard period of 10 years. You have provided the following to support your claim: • independent expert evidence, • a business statement discussing viability of the project, • explanation of record keeping practices, • academic literature concerning product agronomy, • projected budgets, • expense reports, • executive summary.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-10(1) | Income Tax Assessment Act 1997 subsection 35-10(2) | Income Tax Assessment Act 1997 subsection 35-10(2E) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c)