Private ruling: NCL- commissioner's discretion- lead -> $250K
Published: January 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 primary production business in your calculation of taxable income for the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: You have conducted a number of primary production activities. You sold your activity. In 2012, you purchased another property for use in a new primary production business. The property was in a critically rundown state when you purchased it. As a result of this you spent a significant amount of money to restore the property to a condition where it would be profitable in the short to medium term. You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income is more than $250,000. You have provided projections showing that the business will be profitable by the 2013-14 financial year. Assumption(s) N/A

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 was above $250,000 in the 2012-13 financial year. The Commissioner's discretion in paragraph 35-55(1)(c) of the ITAA 1997 may be exercised for the financial year where he is 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. 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 projected income and expenditure forecasts you anticipate that your business activity will produce income greater than deductions attributable to it in the 2013-14 financial year or after two years of operation. 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 that 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 activity for the 2012-13 financial year.