Private ruling: Commissioner discretion to allow losses from your plantation activities
Date of advice: 13 July 2015
Published: July 2015
Ruling period: Year ended 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025 | Year ending 30 June 2026
Date scheme commenced: 1 July 2014

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 activities in the calculation of your taxable income for the 20AA-BB to 20CC-DD financial years? Advice/Answers Yes


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. The income requirement under subsection 35-10(2E) of the ITAA 1997 is satisfied 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 was above $250,000 in the 20AA-BB financial year and you expect this will be the case in the 2015-16 to 20CC-DD financial years as well. 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. In your case, you planted trees in the 20AA-BB financial year and expect to harvest the plantation in the X financial year, or X years after you commenced. You have provided independent evidence which shows that trees can be harvested between X and Y years, depending on growth rates. You expect to produce a profit from your plantation activities in the X financial year. 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 plantation activities for the 20AA-BB to 20CC-DD financial years.

Relevant facts: You acquired a number of hectares. | You have planted a new rotation of trees in the 20AA-BB financial year. | You have provided independent evidence which suggests that a lead time of between X to Y years is expected before the trees will be ready to be cleared. | You are expecting to make a profit from the seedlings in X years. | Expenses you expect to incur in the meantime include lease expenses, fertiliser and management fees. | Your income for non-commercial loss purposes for the years in question will be over $250,000. | You pass the real property test under section 35-40 of the Income Tax Assessment Act 1997 (ITAA 1997)