Private ruling: NCL discretion - nature of activity
Date of advice: 29 March 2022
Published: June 2022
Ruling period: XX June 20XX | XX June 20XX
Date scheme commenced: X July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA1997) to allow you to include any losses from your primary production business in the calculation of your taxable income for the 20XX-XX and 20XX-XX income years? | A1: Yes, having considered your circumstances and the relevant factors, the Commissioner has granted the discretion. It is accepted that it is the nature of your activity which will prevent the business from making a tax profit in the 20XX-XX and 20XX-XX income years. It is also accepted that you will produce a tax profit within the commercially viable period for your industry.

Relevant facts and circumstances: You purchased a property with the intention to run a primary production activity. The primary production activity will be operated through a partnership. The property consists of five paddocks of varying size with a mixture of improved and native pastures and each paddock is serviced by a dam for water supply. You spent three weeks installing fencing to begin setting the farm up to hold sheep. A number of Merino ewes and Border Leicester rams will be purchased with intent to breed, producing lambs to sell in the 20XX-XX income year. The primary production activity requires one-off capital expenditure to operate the primary production activity. You will not report any income in the 20XX-XX income year due to the nature of the primary production activity. You will report income in the 20XX-XX income year from the sale of lambs and wool, but you will not return a tax profit. You expect to return a tax profit in the 20XX-XX 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)