Private ruling: Non-commercial Losses Commissioner's Discretion - <$250,000 Lead time
Date of advice: 10 April 2017
Published: September 2017
Ruling period: Year ended 30 June 2017 to 2024
Date scheme commenced: 1 July 2016

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 business activities in the calculation of your taxable income for the 2016-17 to 2021-22 income years? | A1: Yes | Q2: 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 business activities in the calculation of your taxable income for the 2022-23 to 2023-24 income years? | A2: No

Relevant facts and circumstances: You and your spouse are in partnership farming a product. The farm consists of XXXX trees on XX hectares, located in State A. The activity commenced in 2017. Growing this product is a long term business, with profits expected to commence after eight years. The trees will take less than five years to produce for harvest. At years six to eight years the nuts that are harvested will cover the costs to grow the trees and the depreciation expense. It is expected that the trees will produce XX tonnes of nuts per annum once full production has been reached in 15 years' time. The business will meet one of the four tests in the 2022-23 to 2023-24 income years. The business will produce a profit in the 2024-25 income year. You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

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), and | Income Tax Assessment Act 1997 paragraph 35-55(1)(b).

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) will apply to defer a non-commercial loss from a business activity unless: n you satisfy the income requirement and you pass one of the four tests, or n the exceptions apply, or n the Commissioner exercises his discretion. The relevant discretion may be exercised for the income year in question where: n 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, or n 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. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. Therefore the Commissioner's discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been granted for the 2016-17 to 2021-22 income years. As you have indicated that the activity will meet one of the four tests in the 2022-23 to 2023-24 income years, the Commissioner cannot exercise his discretion for those years.