Private ruling: The Commissioner's discretion and non-commercial business losses
Date of advice: 30 June 2015
Published: June 2015
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20YY
Date scheme commenced: 1 July 20WW

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 primary production business (the activity) in the calculation of your taxable income for the 20WW-XX and 20XX-YY financial years? | A1: Yes

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You began the activity by purchasing approximately X head in the 20WW-XX financial year. At the end of the 20XX-YY financial year you had approximately X breeding stock and after stock drop in February 20ZZ, stock will total approximately X head. You have also planted feed on a portion of the property to be harvested for feed and sale. The first harvest of X bales in 20YY will result in additional income for the activity. With planned stock increases through both breeding and purchasing stock, you expect the activity to be profitable in the 20YY-ZZ 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), and | Income Tax Assessment Act 1997 paragraph 35-55(1)(c).

Reasons for decision: Summary: For the 20AA-BB and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: • 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, reportable fringe benefits and reportable superannuation contributions but 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 period before a tax profit can be produced • there is an objective expectation your business activity will produce a tax profit within the 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 has prevented you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. Consequently the Commissioner will exercise his discretion in the 20WW-XX and 20XX-YY financial years.