Private ruling: Non-commercial losses Commissioner's lead time discretion
Published: April 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: August 2007

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 your calculation of taxable income for the years ended 30 June 2013 and 2014? | A1: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 35-55(1)(c). | Income Tax Assessment Act 1997 section 35-55.

Reasons for decision: Summary: The discretion in paragraph 35-55(1)(c) of the ITAA 1997 may be exercised where: (i) the business activity has started to be carried on and for that or those income years (ii) because of its nature it has not produced, or will not produce, assessable income greater than the deductions attributable to it, and (iii) there is an objective expectation that the business activity, within a period that is commercially viable for the industry concerned, will produce assessable income for an income year greater than the deductions attributable to it for that year. Based on the information you have supplied your activity has gone beyond any preliminary activities and can be said to have commenced as a business activity. It is accepted that it is in the nature of your activity there will be a lead time before a profit (assessable income greater than deductions attributable to it) can be expected. For this reason, your activity has not previously produced a profit, or satisfied one of the tests and will not do so in the years ended 30 June 2013 and 2014. The information you have provided demonstrates that there is an objective expectation that your business activity will produce a profit in the year ending 30 June 20XX. It is further accepted that producing a profit within eight years of commencing your activity will be within a commercially viable period for your industry. This decision is based on the evidence available in this office for the commercially viable period for this industry and additional time required in your activity for maturity of the product. Therefore, the Commissioner's discretion will be granted for the years ended 30 June 2013 and 2014.

Relevant facts: In reaching a decision we have relied on the information provided in your application for private ruling on the exercise of the Commissioner's discretion in paragraph 35-55(1)(c) of the ITAA 1997 and further information provided in an email. | The profit projections you have provided show you will pass the assessable income test and make a profit in the year ending 30 June 20XX, your Z year of operation. | The evidence available in this office and information you have provided suggests that the commercially viable period for this industry will be 4-5 years from the time of planting, at which time first commercial harvest is expected. You have provided information from various sources indicating that the product needs to be matured for some years (three years) before sending to market. | You state your business activity has not satisfied and will not satisfy any of the tests set out in sections 35-30 (assessable income test), 35-35 (profits test), 35-40 (real property test) or 35-45 (other assets test) of the ITAA 1997 or made a profit until the year ended 30 June 2015. | Your other assessable income for NCL purposes is greater than $250,000. | You have applied for the Commissioner's discretion for the 2012-13 and 2013-14 income years. | ATO view documents: Taxation Ruling TR 2001/14 | Taxation Ruling TR 2007/6