Private ruling: non-commercial losses
Ruling period: Year ended 30 June 2010 | Year ending 30 June 2011
Date scheme commenced: 1 July 2009

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 forestry business in the calculation of your taxable income for the 2009-10 and 2010-11 financial years? | A1: Yes.

Relevant facts and circumstances: The arrangement that is the subject of the private 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 private ruling · The Annual Report 2010 - Annual Incremental Growth and Value prepared by a forestry management services firm · Forecast Profit and Loss Statement for the 2010-11 to 2014-15 financial years. You are a partner in a partnership. You pay a commercial rent to the landowner for access to the property for the plantation operations. The land has been planted at an average of X stems per hectare with around Y trees planted. The plantation was purchased as a going concern in 200X (the first plantation trees had been planted in 200Y). An initial Farm Management Plan was prepared prior to purchase; the plan forecast a profit of more than $500,000 per hectare over the life of the operation. The plantation is operated by a fulltime contractor who manages the property. Other ongoing services such as pruning and tree maintenance are contracted out. The projected figures you have provided show that you will first make a tax profit from the business in the 2014-15 financial year. Your income for non-commercial loss purposes is in excess of $250,000 for the 2009-10 financial year.


Reasons for decision: Summary: It is the inherent nature of your forestry activity that there will be little income until the trees reach commercial maturity. You expect to first make a tax profit from the activity in the 2014-15 financial year. It is accepted that this is within a commercially viable period for the forestry industry. It is considered appropriate for the Commissioner to exercise the discretion under paragraph 35-55(1)(c) of the ITAA 1997 for the 2009-10 and 2010-11 financial years. | Detailed Reasoning - Detailed reasoning: 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 (relevant to this division): · 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 (that is, your taxable income, 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 your business activity that there will be a delay before a tax profit can be produced; and · there is an objective expectation your business activity will produce a tax profit within a commercially viable period for your industry. It is the inherent nature of your business activity that there will be little income until the trees reach commercial maturity. You forecast that you will make a taxable profit in the 2014-15 financial year. It is accepted that this is within a commercially viable period for the forestry industry. Based on the above, it is considered appropriate for the Commissioner to exercise the discretion under paragraph 35-55(1)(c) of the ITAA 1997 for the 2009-10 and 2010-11 financial years.

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