Private ruling: Non-commercial losses - Commissioner's discretion
Ruling period: Year ended 30 June 2010 | Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013
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 primary production activities in the calculation of your taxable income for the 2009-10 to 2012-13 income years? | A1: 


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: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non commercial loss purposes is above $250,000. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. You commenced your primary production business in 2007. Your plan is to produce a livestock herd that will provide a high quality product for consumers in niche markets. You believe your activities will break even in the 2013-14 financial year or seven years after you commenced. You have stated that time is needed to develop a breeding herd which can produce a reliable product. The target breed will take at least 27 to 33 months from birth to produce the first offspring meaning they will not join production until 2012. You have provided opinion from an independent source that states six years to develop a target breed is reasonable in the industry given that breeding stock would be difficult to purchase. Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater than the expenses attributed to it. Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your primary production business for the 2009-10 to 2012-13 financial years.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | You intend to develop a composite livestock herd that will provide a high quality product for consumers in niche markets. | While the target herd is being developed, revenue will be generated through breeding and selling excess stock. | You expect your activities to break even in the 2013-14 financial year. | You have provided independent opinion that six years to develop a target breed is reasonable in the industry given that breeding stock would be difficult to purchase. | Your adjusted taxable income for non commercial loss purposes in the 2009-10 financial year was more than $250,000 and you expect your income to be more than $250,000 in the 2010-11 to 2012-13 financial years also.