Private ruling: Non commercial losses and the Commissioner's discretion
Published: June 2012
Ruling period: Years ended 30 June 2012 to 2035
Date scheme commenced: September 2011

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 hardwood activity in the calculation of your taxable income for the 2011-12 to 2034-35 financial years except the year where the discretion is necessary because you make a tax profit? | A1: Yes.


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. Having regard to your full circumstances, it is accepted that it is the nature of the business activity that has prevented you 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 2011-12 to 2033-34 financial years except for any financial year your activity achieves a profit.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your partners purchased land in late 2011 to grow trees | You have the seedling trees in a nursery and they will be big enough to plant out in after 30 June 2012 | Thinning will occurred at 10-12 years and at 15-17 years and clear fall harvest in approximately the 20-25 years. | You will not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income will be more than $X in the 2011-12 financial year and you expect your income may be more than $X for the foreseeable future.