Private ruling: The Commissioner's discretion and non-commercial business losses
Date of advice: 3 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise the 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 primary production business (the activity) in the calculation of your taxable income for the 2014-15 financial year? | A1: Yes

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You were employed in a particular primary production field. However you decided to commence an activity in that field as a sole trader in the relevant financial year. You applied for an ABN during the relevant financial year. You bought a large amount of equipment for the production of your product during the relevant financial year. However due to seasonal production, no produce was made during the remainder of the relevant financial year and therefore the activity made a loss. You intend on selling your produce to various companies that you have built a relationship with whilst working as an employee. You predict that the activity will first meet one of the four tests in the subsequent financial year.

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)(b)

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) will apply to defer a non-commercial loss from a business activity unless: • you satisfy the income requirement and you pass one of the four tests, or • the exceptions apply, or • the Commissioner exercises his discretion. The relevant discretion may be exercised for the income year in question where: • it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests, or • there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry. Having regard to your full circumstances, it is accepted that it is the nature of the business activity that has prevented one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. Therefore the Commissioner's discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been granted for the 2014-15 financial year.