Private ruling: Non-commercial losses
Date of advice: 26 November 2015
Published: February 2016
Ruling period: Year ended 30 June 20VV | Year ending 30 June 20WW | Year ending 30 June 20XX | Year ending 30 June 20YY
Date scheme commenced: 1 July 2014

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 primary production business activity in your calculation of taxable income for the 20VV to 20YY financial years? | A1: Yes.


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: Summary: For the 20AA-BB and later financial 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. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your 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 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 for the 20VV to 20YY financial years inclusive.

Relevant facts: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. | You carry on a primary production business. | You commenced business operations in the 20VV financial year. | You have provided independent evidence that attests to a lead time of three to four years for your industry. | You intend to make more than $15,000 in assessable income in the 20ZZ financial year. | You have submitted a financial forecast in support of your intention.