Private ruling: Commissioners discretion
Date of advice: 18 October 2016
Published: December 2016
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20YY | Year ending 30 June 20XZ
Date scheme commenced: 1 July 20XY

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your primary production activity in your calculation of taxable income for the 20XY-XX, 20XX-YY and 20YY-YZ financial years? | A1: Yes

Relevant facts and circumstances: You are carrying on a business of primary production activities which commenced in 20XX. You started with x agriculture stock but lost x due to drought, you currently have x agriculture stock remaining. The agriculture stock will produce approximately an even mix of male and female offspring. After two more years you will have increased your agriculture stock. Your income for non-commercial loss purposes for the 20XY-XX to 20YY-YZ financial years is more than $40,000 but less than $250,000. Your income projections show you expect to make in excess of $XX,000 in assessable income in the 20YZ-ZZ financial year.

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)(b) Detailed reasoning | 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 satisfy the income requirement and you pass one of the four tests | • the exceptions apply | • the Commissioner exercises his discretion. | In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. | The relevant discretion may be exercised for the income year in question where: | • it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests | • there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry. | Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. | Therefore, the Commissioner will exercise the discretion in the 20XY-XX, 20XX-YY and 20YY-YZ financial years.