Private ruling: Non-commercial losses and the Commissioner's discretion
Published: May 2012
Ruling period: Years ended 30 June 2010 to 2039
Date scheme commenced: 1 July 2009

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 2009-10 to 2038-39 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 Income Tax Assessment Act 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 $X thousand) 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 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 2009-10 to 2038-39 financial years except in those years where the discretion is necessary because you make a tax 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 spouse commenced a primary production business in respect of trees prior to 2010. | The trees were planted prior to 2010. | Your projections show that you will make a profit in the 2028-29 to 2031-32 financial years due to thinnings. | The trees will be felled in the 2038-39 to 2041-42 financial years and a profit will be made in each of these years. | You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $X thousand in the 2008-09 financial year and you expect your income to be more than $X thousand for the foreseeable future.