Private ruling: Non-commercial losses - Commissioner's discretion
Published: November 2011
Ruling period: Year ended 30 June 2011 Year ended 30 June 2012
Date scheme commenced: 6 March 2006

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 primary production harvesting activity in your calculation of taxable income for the 2010-11 to 2012-13 financial years? | A1: Yes.


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

Reasons for decision: Summary: You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997. The discretion in paragraph 35-55(1)(b) of the ITAA 1997 may be exercised where: (i) the business activity has started to be carried on and for that or those income years (ii) because of its nature it has not satisfied, or will not satisfy, one of the tests set out in Division 35 of the ITAA 1997, and (iii) there is an expectation that the business activity of an individual taxpayer will either pass one of the tests or produce a taxation profit within a period that is commercially viable for the industry concerned. Based on the information you have provided, your activities have gone beyond any preliminary activities and can be said to have commenced as a business activity from the 2005-06 financial year. The Commissioner has already accepted, in a private ruling issued in 2009, that it is in the nature of your activity there will be a lead time before a profit can be expected or, one of the tests passed. The income and expense projections you provided with your original application indicated that you expected to receive tax profits from the 2010-11 financial year. For these reasons, the Commissioner's discretion was granted for the 2005-06 to 2009-10 financial years. The independent evidence you originally provided suggested that the harvest commences in year five. You have now provided new independent evidence from an industry expert stating that it takes 'a decade or more to produce a commercial crop' of your produce. Due to the combined effect of delayed production (by one year) and increased expenses (compared to your previous projections), your revised projected figures indicate an expectation that your primary production harvesting activity will produce a profit by the 2013-14 financial year, eight years after commencing your activity. From the independent evidence you have provided, this is within the commercially viable period for this industry. Therefore, the Commissioner will exercise the discretion available, in accordance with paragraph 35-55(1)(b) of the ITAA 1997, in relation to an extension of the lead time for your primary production harvesting activity from the 2010-11 to the 2012-13 income years.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Year ended 30 June 2013 The scheme commenced on | Relevant facts: The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | · your application for private ruling dated 4 December 2008; and | · this application for private ruling dated 12 October 2011. | Your adjusted taxable income for non-commercial loss purposes is less than $250,000 in the 2010-11 financial year and you also expect it to remain under this level in the 2011-12 and 2012-13 financial years. | In 2009, the Commissioner issued a private ruling, exercising his discretion under paragraph 35-55(1)(b) of the ITAA 1997 for the 2004-05 to 2011-12 income years for your primary production harvesting activity. | In your private ruling application you provided the following facts: | In the year 2000, you purchased a property to build a house and conduct a primary production activity in partnership. | After completing the preliminary activities you commenced the primary production harvesting activity in mid 2006. | You had provided independent evidence to suggest that the commercially viable period for your primary production harvesting activity was five years. | You wish to revise your figures for higher expenditure and slower production commencement than originally estimated. | You state that, based on the experience of other growers, you had expected to be in production of marketable produce in year five (2011). | At this stage you expect the previously provided production (income) schedule is still appropriate, albeit with a 12 month delay. Local production reports are mixed this year with some growers reporting high yields and others less than expected. While you had anticipated that the weather in December would have softened the soil and aided production it is not clear that this is the case. | You had previously expected a profit in the 2010-11 financial year. | Due to the combined effect of delayed production (by one year) and increased expenses (compared to your previous projections), your current figures indicate you now expect your first year of net profit to be delayed by three years to the 2013-14 financial year.