Private ruling: Non-commercial losses - Lead Time
Date of advice: 7 November 2017
Published: March 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

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 business activity in your calculation of taxable income for the 2016 financial year? | A1: Yes

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You fail the income requirement for the year due to receiving a redundancy. This redundancy will fund improvements to the property. You do not have any other employment and do not plan to seek alternative employment. You carry on a primary production business. The business was previously operating as Activity X but has converted to Activity Y. You commenced business operations for Activity Y in the 2015-16 financial year. You have provided independent evidence that attests your projections meet the commercially viable period for your industry. You intend to sell cattle when they are approximately 12-18 months old or 350kg. You intend to make a tax profit in the 2018-19 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)(c)

Reasons for decision: Summary: 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. Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented you from making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. Consequently, the Commissioner will exercise his discretion in the 2015-16 financial year.