Private ruling: Non commercial losses - Commissioner's discretion
Published: July 2011
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2009

Ruling: Q1: Will the Commissioner exercise his discretion under paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in your calculation of taxable income for the 2009-10, 2010-11, 2011-12, 2012-13 & 2013-14 financial years? | A1: Yes


Relevant legislative provisions: 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) | Income Tax Assessment Act 1997 Section 35-45

Reasons for decision: Summary: 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: · you satisfy the income requirement and you pass one of the four tests; · the exception applies; or · the Commissioner exercises his discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your 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 of time before it can be expected to pass one of the four tests; and · there is an objective expectation your business activity will produce a tax profit or meet one of the four tests 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 will prevent one of the four tests being passed in the 2009-10, 2010-11, 2011-12, 2012-13 & 2013-14 financial years. It is also accepted that you will pass the other assets tests in the 2014-15 financial year which is within the commercially viable period for your industry. Consequently the Commissioner will exercise his discretion in the 2009-10, 2010-11, 2011-12, 2012-13 & 2013-14 financial years.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You intend to graft new rootstock onto existing plants. | Modifications have been made to the land and the soil has been prepared for planting. The rootstock has been ordered and is expected to be planted in spring 2011. | Existing buildings will be converted to accommodate future expansion needed. | You will have an equal share in the management of the business. You will use casual labour as required during busy periods. | You passed the income requirement for non-commercial loss purposes. | You are anticipating that you will pass the other assets test in the 2014-15 financial year. | According to independent evidence, the lag between planting and receiving a commercial yield plus the maturation time can be up to 6 years from the time of planting before the new supply reaches the consumer.