Private ruling: Non-commercial losses - Commissioner's discretion
Published: December 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

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 the losses from your primary production activity in your calculation of taxable income for the 2012-13 financial year? | A1: Yes


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

Reasons for decision: Summary: For the 2009-10 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 case, 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 you 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 financial 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; and · 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. For the reasons stated above, the Commissioner will exercise the discretion available in accordance with paragraph 35-55(1)(c) of the ITAA 1997 for the 2012-13 financial year.

Relevant facts: Your income for non commercial loss purposes is above $250,000. | You purchased a property to breed livestock for sale from a grass fed, free range environment. | You expect sales to begin in 2013-14. | You spend time working at the farm and also time is spent on the set-up of the sales side of the business and on your marketing and promotion. You have been working on setting up potential sales with gourmet outlets both in your local area and in your capital city. Once your produce allows you will be attending a local farmers' market. The sales to gourmet outlets will also be increasing as your production output goes up | You have not provided a commercially viable period for your type of primary production however we have information that show sales of stock/produce would be feasible within a 12 month period. | You have provided documentation to demonstrate that you have a significant amount of stock. | You plan to sell a significant amount of stock in the 2013-14 financial year. | The stock/produce will be sold into two different markets. | You have provided profit and loss projections showing that you expect to make a profit in the 2013-14 financial year.