Private ruling: Non-commercial losses
Published: March 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2010

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 activity in your calculation of taxable income for the 2013-14 to the 2015-16 financial years? | A1: Yes.

Relevant facts and circumstances: You and your spouse are partners in a primary production partnership that commenced in the 200X financial year. You expected that the assessable income test would be achieved in the relevant financial year however it was unknown at the time what long term damage was done due to flooding. It is now clear that it will take X% of the property a number of years to start producing produce. A reasonable harvest was returned in the relevant financial year. You expect that you will meet the assessable income test in the subsequent financial year. Your independent industry source provides that it will take up to 10 years to achieve full production. Your income for non-commercial loss purposes will be less than $250,000 in the excluded years.

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)(b) Reasons for decision | For the 2009-10 and later income years, division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: | • you satisfy the income requirement and you pass one of the four tests | • the exceptions apply | • the Commissioner exercises his discretion. | The relevant discretion may be exercised for the income year in question where: | • 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 | • 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 has prevented 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. | Consequently the Commissioner will exercise his discretion in the relevant financial years.