Private ruling: Non-commercial losses - lead time
Date of advice: 28 February 2024
Published: 15 April 2024
Ruling period: Year ended 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025 | Year ending 30 June 2026
Date scheme commenced: 1 July 2022

Ruling: Q1: Will the Commissioner exercise his 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 business activity in the calculation of your taxable income for the 2022-23 - 2025-26 financial years? | A1: Yes. Having regard to your full circumstances, it is accepted that it is 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. Consequently, the commissioner will exercise his discretion in the relevant financial years.

Relevant facts and circumstances: The partners operate a primary production business of breeding livestock. Both partners satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You commenced business operations in the 2022-23 financial year. The day-to-day operations are handled by the two partners along with contract workers as needed. You carry on your business on land that the partners have owned since 20XX. You previously leased this land out to farmers in the area. You are in the process of increasing the livestock numbers along with reinvigorating the land so that it may be used, with the intention of observing profitability by the 2024-25 financial year. You believe you will be profitable within the industry lead time period of 2-3 years. You have supported this claim with independent evidence. You have a business plan that outlines reasonable steps forward as to how these goals will be met. You have provided information to show that you will make a taxable profit within the commercially viable period.

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)(c)