Private ruling: Non-commercial losses and the Commissioner’s discretion for lead time.
Date of advice: 30 August 2018
Published: October 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion to allow you to include any losses from your business in the calculation of your taxable income for the 2016-17 financial year? | A1: Yes. Having regard to your full circumstances, the Commissioner has granted his discretion as it is accepted there is a 'lead time' in the nature of your business activity and you will make a tax profit within your industry's commercially viable period. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997 for the 2016-17 financial year. However you expect to pass the income requirement in subsequent years. You commenced a primary production activity in the 2016-17 financial year. Your operation is to rear a select breed of livestock and sell them. In your first year of trading you did not have access to this select breed of livestock and instead reared a number of other breeds which were sold at younger ages. During the 2017-18 financial year you received your select breed of livestock and you will take these livestock through to eight-nine months of age and then sell them. As a result of this you will not make a profit until the 2018-19 financial year. The first select breed of livestock will be delivered under contract in September/October 2018, therefore the business is expected to produce a profit in the 2018-19 financial year. You will rear some other breed of livestock to create a faster cash return, but the margins are low and this will be phased out by the end of the 2018-19 financial year. By the end of the 2018-19 financial year you expect to be only rearing your select breed of livestock. In the 2017-18 financial year your business has earned more than $X in assessable income. You expect your business will produce a profit of $X in the 2018-19 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 subsection 35-10(2E) and | Income Tax Assessment Act 1997 paragraph 35-55(1)(c).