Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 1 November 2017
Published: March 2018
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 April 2016

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 to allow you to include any losses from your breeding business activity in the calculation of your taxable income for the 2016-17 and 2017-18 financial years? | A1: Yes. Having regard to your full circumstances, it is accepted that it is in 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 2016-17 and 2017-18 financial years. For more information on non-commercial losses, please visit www.ato.gov.au and use quick code QC 33774 at the search area at the top of the page.

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. In April 2016 you commenced the activity under a partnership arrangement. You are in the process of increasing the number of livestock that the business will run, from its current number to more than 1000. You plan on gradually increasing to the desired number over the next three years. In the first three months of operation the business has incurred a substantial tax loss with a major component being costs associated with acquiring the necessary plant and equipment and acquiring and grazing the initial livestock. The activity’s main goal is to develop sufficient stock numbers over the first three years to ensure the business's sustainability, commerciality and viability in the future. You have provided a projected profit and loss statement that indicates that the activity will be profitable in the 2018-19 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)(c)