Private ruling: Commissioner's discretion
Published: December 2011
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ending 30 June 2012
Date scheme commenced: 1 June 2010

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 livestock breeding business activity in your calculation of taxable income for the 2009-10 to 2011-12 financial years? | A1: 


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 2009-10 and 2010-11 financial years and you expect this will be the case in the 2011-12 financial year as well. 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). For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. In your case, you commenced your livestock breeding activities in 2010 and you expect to produce a tax profit in the 2012-13 financial year or three years after you commenced. You have provided independent evidence to show that the time between acquiring a female and the sale of the resulting progeny is two and a half years. Based on the general evidence available, 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) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your livestock breeding enterprise for the 2009-10 to 2011-12 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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You commenced your commercial livestock breeding business activity in 2010. | The business is conducted on a leased property and you plan to breed high quality livestock. | You have stated that the time between acquiring a female and the sale of offspring is two to three years. | You have provided independent expert evidence which states that the time between acquiring a female and the sale of the resulting progeny is two and a half years. | Your projected income and expenditure figures show that you expect to produce a tax profit in the 2012-13 financial year. | Your income for non-commercial loss purposes in the 2009-10 and 2010-11 financial years was above $250,000 and you expect this will be the case in the 2011-12 financial year as well.