Private ruling: Non-commercial losses
Published: July 2011
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

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 stables in your calculation of taxable income for the 2009-10 income year? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These document forms part of and are to be read with this description. The relevant documents are: · Your Private Ruling application which we received on X July 20XX · Plan of operations · Sales and marketing strategy · Breeding plan and history · Statements of validity of business operation. Your business commenced on X July 20XX. You have stated on your application that the accepted number of years before an activity becomes viable in your industry is 5-10 years. Your business met the assessable income, real property, and other assets test in 2001. Your business activities are run by your parents, two full-time staff and yourself. You do not expect to make a profit until the 20XX-XX financial year. You have provided a projected income and expenditure report. The global financial crisis also slowed your business activities. You do not meet the income requirement for the 2009-10 financial year as your adjusted taxable income exceeds $250,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-55(1)(c).

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 (relevant to this division): · 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, excluding your business losses, exceeds $250,000) and do not come under either 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 lead time before a tax profit can be produced · there is an objective expectation your business activity will produce a tax profit within a commercially viable period for your industry. Taxation Ruling TR 2006/7 provides guidelines on exercising the discretion. In order to demonstrate that the objective expectation exists, the ruling states you should produce evidence from independent sources showing that the business activity will produce a tax profit, showing the period within which a commercially viable business would do so. Appropriate independent sources include industry bodies or relevant professional associations, government agencies, or other taxpayers conducting successful comparable businesses. In your situation, we accept it is in the nature of your activity that there will be a lead time before a profit can be expected. However to establish whether your business activity will produce a tax profit within a commercially viable period for your industry, you have not provided any evidence such as industry standards, articles or statistics to support your claim. Notwithstanding this, you have stated that it takes a certain period of time for your business activity to become profitable, but your business will have been operating for several years over this period before you expect to make a tax profit. Accordingly the Commissioner will not exercise his discretion to allow you to claim your losses in 2009-10 income year as, based on the information you have provided, you will not make a tax profit within a period which is commercially viable for your industry.

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.