Private ruling: Non-commercial losses - lead time
Date of advice: 12 September 2022
Published: December 2022
Ruling period: Year ended 30 June 2021 | Year ended 30 June 2022 | Year ending 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025
Date scheme commenced: 1 July 2020

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 cattle farming business in your calculation of taxable income for the 2020-21 to 2024-25 income years? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner will exercise his discretion to allow you to include any losses from your business activity in the calculation of your taxable income for the years ended 30 June 2021 and 30 June 2022 and the years ending 30 June 2023, 30 June 2024 and 30 June 2025. It is accepted that there is a 'lead time' in the nature of your activity and it will make a tax profit within the commercially viable period for the industry concerned. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You operate a primary production business which operates as a cattle farm. You commenced your business in the year beginning 1 July 2020. You did not satisfy the less than $250,000 income requirement as set out in subsection 35-10(2E) of the ITAA 1997 You purchased the property with the intent to breed, raise and sell livestock. You have invested in capital improvements and have commenced a program of pasture improvements with the goal to increase the cattle carrying capacity. You purchased a number of trade steers in the year ended 30 June 2021 to grow for future sales. You then sold a number of trade steers in the year ended 30 June 2022 and experienced the death of a few trade steers. You also purchased a number of trade steers in the year ended 30 June 2022 which you will run into the end of winter. You elected not to run many cattle going into the winter so you could commence a program of pasture improvement and you will continue to improve the quality of the paddocks over the next few years which will allow you to increase your carrying capacity. You have provided a five-year plan for your business including cattle numbers as well as a financial forecast starting in the year ended 30 June 2021 and ending 30 June 2025. You have provided an independent report which opinions your business will become a profitable enterprise within 3-5 years. You anticipate that the business will produce a profit in the year ending 30 June 2025 financial year.

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) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c)