Private ruling: Commissioner's discretion
Published: May 2013
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2010

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 livestock breeding business in your calculation of taxable income for the 2010-11 to 2014-15 financial years? | A1: 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. 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 2010-11 and 2011-12 financial years and you expect this will be the case in the 2012-13 to 2014-15 financial years as well. 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. 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 cattle farming business for the 2010-11 to 2014-15 income years.

Relevant facts: You acquired a property in the 2010-11 financial year and commenced a livestock breeding business, under a partnership structure, with your spouse. | The property was acquired with no stock. | You have spent considerable funds on improving the property, which is now in excellent condition and will require minimum expenditure to maintain. | As at 30 June 2012, the property is stocked with X head. | You expect to breed approximately X head per year by the 2015-16 financial year. | You have provided independent evidence in the form of articles from an industry association which states that your livestock breed reaches puberty later than other breeds. | The progeny from your first year are coming to maturity and this will increase your breeding herd to around X. | You intend to buy additional breeders after culling non-producing stock and with more livestock reaching maturity, your breeding herd should reach the maximum number of X by the end of 2014 to early 2015. | Your income for non-commercial loss purposes in the 2010-11 and 2011-12 financial years was above $250,000 and you expect this will be the case for the 2012-13 to 2014-15 financial years as well.