Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 4 December 2015
Published: February 2016
Ruling period: Years ended 30 June 2015 to 2035
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise the discretion in section 35-55 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your plantation business activity in the calculation of your taxable income for the 2014-15 to 2034-35 financial years? | 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 have been carrying on a plantation business under a partnership arrangement with your spouse, and a joint venture interest with the State Government, for a number of years. Since starting your plantation your interest has changed, in that the partnership now has a 100% interest or ownership in the plantation. You now hold the 'Guarantee of Harvest Certificate' issued by the State Government. The business will produce assessable income after 20 and then 30 years from the thinning process, then when harvesting the final crop in 2035. You have provided independent evidence that attests to a lead time of 40 years for your industry and particular timber grown. You predict that your business will be profitable after the final harvest in the 2034-35 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: 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 in 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)(c) of the ITAA 1997 has been granted for the 2014-15 to 2034-35 financial years.