Private ruling: Non-commercial business losses and the Commissioner’s discretion
Date of advice: 11 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2016-17 to 2037-38
Date scheme commenced: 1 July 2016

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 (the activity) in the calculation of your taxable income for the 2016-17 to 2037-38 financial years? | A1: Yes. Having regard to your full circumstances, it is accepted that it is in the nature of your 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 for the 2016-17 to 2037-38 financial years. For more information on non-commercial losses, please visit www.ato.gov.au and search quick code QC 33774.

Relevant facts and circumstances: In the 2016-17 financial year you commenced a forestry operation activity from a leased property. In the 2016-17 financial year you engaged the services of an independent consultant to prepare a detailed business plan for the activity, which states the following: The property is mostly forested and made up of a mix of: 1. Area 1 - unregulated hardwood regrowth dominated by species x, with associated other species. There are no restriction to management within this area, and 2. Area 2 - mapped regulated hardwood vegetation with a mixed forest type of hardwood. Harvesting and management is permissible and regulated by the Code of Practice. The property has been logged many times in the past and partially cleared for grazing. The last harvest (in the last 10 years) was a very heavy harvest removing all available future Sawlogs this resulted in a very significant regeneration response with the stand now supporting more than 1000 stems /ha mostly under 15 cm diameter at Breast height. The current condition of the stand is similar to an eight year old hardwood plantation that is now chronically in need of thinning. Given that the standing timber is similar to an eight year old hardwood plantation, it is accepted that for the purposes of the lead time discretion the forestry activity commenced in the 2009-10 financial year. You will operate the activity as a sole trader, with the assistance of contract labour when required. You have advised that there is a lead time of 25 to 30 years for the hardwood species that you grow. The activity will produce a tax profit from the final harvest in the 2038-39 financial year, which is the 30th year of operation of the activity. Over the life of the activity you expect to make a net profit. Your income for non-commercial loss purposes is in excess of $250,000.

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 Paragraph 35-55(1)(c).