Private ruling: Non-commercial losses
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner exercise the discretion in subsection 35-55(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your primary production business in your calculation of taxable income for the 2012-13 financial year? | A1: Yes

Relevant facts and circumstances: You commenced a primary production business activity in the 2012-13 financial year with the purchase of an interest in a primary production property. No livestock was sold from this property in the 2012-13 financial year. Your business plan shows an expected increase in sales and profit in future years. You also inherited an interest in another primary production partnership in the same year. You meet the real property test for non-commercial loss purposes. Your income for non-commercial loss purposes in the 2012-13 financial year was above $250,000

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes was above $250,000 in the 2012-13 financial year In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). Based on the general evidence available, the Commissioner is satisfied that there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater than the expenses attributed to it. Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) of the ITAA 1997 in relation to your primary production business activity for the 2012-13 financial year.