Private ruling: Non-commercial losses
Published: May 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013.

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 business activity in the calculation of your taxable income for the 2013-14 and 2014-15 income years? | A1: Yes.

Relevant facts and circumstances: You satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. You purchased a property in but were obligated by a lease in place at the time of purchase to allow the lessee to be given time to vacate the property. Advice provided that the best product was obtained from planting early in the year and harvest late in the year. Due to the marketing strategy for the product the payments from the harvest start being received a few weeks after harvest and continue throughout the year. You have projected you will make a loss in the 2013-14 and 2014-15 income years. You have provided independent evidence that attests to a lead time of approximately two years for your industry. You have projected that you will pass the in assessable income test as provided by Division 35 of the ITAA 1997 in the 2015-16 income 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)

Reasons for decision: Summary: For the 2009-10 and later income 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, or • the Commissioner exercises the 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. 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 (CVP) for your industry. The CVP for your industry is two years, meaning you would be expected to pass a test or make a tax profit in the 2014-15 income year however you will not achieve this until the 2015-16 income year. Paragraph 98 of Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion allows a tolerance of one year in the CVP where a business has commenced towards the end of a financial year. Applying this tolerance to your situation allows you to meet the test/profit requirement within the CVP timeframe. It is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed in the applicable income years. 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 the discretion in the 2013-14 and the 2014-15 income years.