Private ruling: Non-commercial losses
Published: February 2014
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2008

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 primary production activity in your calculation of taxable income for the 2012-13 to 2013-14 financial years? | A1: Yes.

Relevant facts and circumstances: Your income for non-commercial loss purposes is above $250,000. Information sourced from a government department provides that production will commence in two to three years and a good commercial crop can commence by four to five years. Their advice also notes that full commercial production does not begin until 9-10 years and that yields up to year 7 can be highly variable. The Commissioner exercised the discretion for the 2009-10 to 2011-12 financial years as you expected to make a tax profit in the 2012-13 financial year. Unexpected activity has delayed the full production capability by approximately 2 years and you expect to produce a tax profit in the 2014-15 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 35-55(1)(c)

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 meet the income requirement and you pass one of the four tests · the exceptions apply · the Commissioner exercises his discretion. In your situation, you do not satisfy the income requirement and do not come under any of the exceptions. The relevant discretion may be exercised for the income year in question where: · it is in the nature of your business activity that there will be a period before a tax profit can be produced; and · there is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry. 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 2012-13 to 2013-14 financial years.