Private ruling: Non-commercial losses
Published: June 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

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 business activity in the calculation of your taxable income for the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: Your income for non-commercial loss purposes exceeded $250,000 in the 2012-13 financial year due to the sale of an investment property. Normally your employment income is approximately $120,000. Your business is primary production and you commenced the business midway through the 2012-13 financial year. You passed three of the four tests in the 2012-13 financial year and expect to make a profit in the 2015-16 financial year. We consider the commercially viable period (CVP) for your industry is three years.

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 financial 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 the discretion. In your situation, you do not satisfy the income requirement and do not come under any of the exceptions. 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. In your circumstances you commenced primary production in the 2012-13 financial year and will produce a tax profit in the 2015-16 financial year. The considered CVP for your industry is three years. Paragraph 98 of Taxation Ruling TR 2007/6 Income tax: non-commercial losses: Commissioner's discretion allows an extra year for business starting during a financial year. Consequently the Commissioner will exercise the discretion in the 2012-13 financial year.