Private ruling: Commissioner's discretion - non-commercial losses
Date of advice: 8 August 2022
Published: November 2022
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

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 business activity in your calculation of taxable income for the 20XX-XX to 20XX-XX 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 you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. Consequently, the Commissioner will exercise his discretion in the years ending 30 June 20XX to 30 June 20XX.

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a primary production XXXXX business. You operate the business as a sole trader. You commenced business operations in the year ended 30 June 20XX. You are growing XXX native trees, which were planted during the year ended 30 June 20XX. The mission is to provide people in your region with sustainably and locally grown XXXX. The aim is to focus predominantly on the growing and arranging of 'speciality cut XXXX for farmers markets, custom bouquets, and wedding and event florals. Apart from cut XXXX, you will also be involved in the growing of other plants such as fruit trees, foliage plants, potted herbaceous perennials, cut cultivated greens, and propagative floriculture materials. Along with this the business aims to increase revenue through related services and products such as dried and decorative arrangements, DIY workshops and organically and naturally grown produce and herbs. Initially you will focus on the growing of annuals for farmer market sales. As the business grows and saplings mature the focus will move to floral arrangements for weddings and events. The areas the business will concentrate on in your cut flower farming business and the order of timing is as below: • seasonal cut XXXX and cut cultivated greens for farmer markets • seasonal floral arrangements for farmer markets • floral arrangements for events including weddings. You will later expand to include the following services: • potted herbaceous perennials for farmer markets • mature roses, natives, and foliage materials for florists • floral arrangements and packages for events • decorative fruits such as finger limes for events and wholesale • dried floral arrangements. The business is located on fertile soil. You prepared the soil and farm land for planting, which is also an ongoing requirement, as is the continuing of obtaining working tools, machines, and equipment. Due to the nature of native trees and shrubs for cut XXXX farming, it takes an average of 4-6 years to produce yields of flowers/foliage that are viable to produce a profit. Projected income and expenditure has been based off of consultation with individuals in the industry, as well as industry documents. Projected cash flow was attached in the Business Plan as well as supporting industry documents used as a basis. You are growing a diverse range of plants and XXXX and their details are as follows: Eucalypt Bud and Flower One quarter of a hectare of eucalypt buds and XXXX, 100 plants, autumn planting, assuming no losses as plants will be replanted when lost. Leucadendron One quarter of a hectare of Leucadendron varieties, XX plants, autumn planting, assuming no losses as plants will be replanted when lost. Leucospermum One quarter of a hectare of Leucadendron varieties, XX plants, autumn planting, assuming no losses as plants will be replanted when lost. Banksia Menziesii One eighth of a hectare of Banksia varieties primarily Menziesii, XX plants, autumn planting, assuming no losses as plants will be replanted when lost. You are currently planting as that is ongoing and your second stage of planting will include Kangaroo Paw plants. Kangaroo Paw One eighth of a hectare of Kangaroo Paw varieties XXX plants, autumn planting, assuming no losses as plants will be replanted when lost. Planted in 20XX as per weather conditions and financial stability of the business. Replanting will occur in 20XX in-line with the species lifespan to ensure continuity of stock. You have provided independent evidence that attests to a commercially viable period of 4-6 years for your industry. Your forecast based on XXX native trees shows that you will meet the profits test in the year ending 30 June 20XX, as you will have made a profit for 20XX, 20XX and 20XX. You intend to make a tax profit in the year ending 30 June 20XX.

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)