Private ruling: non-commercial losses
Date of advice: 10 January 2017
Published: June 2017
Ruling period: Year ended 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

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 2015-16 and 2016-17 financial years? | A1: Yes

Relevant facts and circumstances: You are carrying on a business of primary production which commenced in late 201X. Your income for non-commercial loss purposes for the financial years 2015-16 to 2016-17 is more than $250,000. You have provided independent evidence that attests to a commercially viable period of two years for your industry. You state the business will make a profit in the 2017-18 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) Detailed reasoning | For the 2009-10 and later financial years, Division 35 of the Income Tax Assessment Act 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 | ● the Commissioner exercises his discretion. | In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. | 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 before a tax profit can be produced | ● there is an objective expectation your business activity will produce a tax profit within a 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. | Therefore, the Commissioner will exercise the discretion in the 2015-16 and 2016-17 financial years.