Private ruling: Non-commercial losses
Published: March 2014
Ruling period: Year ending 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 you to include any losses from your business activity in the calculation of taxable income for the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: You commenced primary production activity in partnership in 200X. You do not meet the income requirement for non-commercial loss purposes for the 2012-13 financial year however in future years it will not exceed this requirement. You have provided information from an independent source that the commercially viable period for primary production activity is 12 to 16 years. You have provided profit and loss statements to show you will produce a tax profit in the 2013-14 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 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2E)

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 situation, you do not satisfy the income requirement and do not come under any of the exceptions. 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. In your circumstances you commenced your primary production activity in the 200X financial year and will produce a tax profit in the 2013-14 financial year. The independent industry source advises that a profit could be expected within 12 to 16 years. Consequently the Commissioner will exercise his discretion in the 2012-13 financial year.