Private ruling: Non-commercial losses and the Commissioner’s discretion
Date of advice: 3 September 2018
Published: October 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise the discretion to allow you to include any losses from your primary production business in the calculation of your taxable income for the XXXX-XX 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 less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997 for the 2016-17 financial year. You purchased a property for the purposes of cattle breeding. You commenced buying cattle immediately and by XXXX the property consisted of XX head of cattle. Your long term plan is to have XX permanent breeders and XX seasonal stock. Your production process involves a combination of buying in breeding cattle and increasing the herd size through natural increase. You advise it will take four years before your activity will become commercially viable. This is due to you having to locate and purchase a breeding herd. There is a gestation period of around nine months before the breeding cattle will produce their first calves and a further 12 months for maturation to weaner stage. You had to reduce cattle numbers in 2018 to ensure the activity could weather the drought in that year. The projected profit and loss statement provided for the XXXX-XX financial year confirms that the business will be profitable in that 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) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c)