Private ruling: Commissioner's discretion
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

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 any losses from your farming enterprise in your calculation of taxable income for the 2009-10 financial year? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise his discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000. In order to exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997, the Commissioner must be satisfied that there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period. For the Commissioner to exercise the discretion, you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. In your case, you commenced your farming activities in 19XX. You have not provided any evidence from an independent source to establish the commercially viable period for your industry/business. However, you have stated that you expect your activities will produce income greater than the expenses attributed to it in 2010-11 to 2012-13 financial years or XX to XX years after your activities commenced. Taking into consideration the information you have provided, the Commissioner is not satisfied that the commercially viable period for your type of business activity is XX to XX years. The reason your business activity is producing a loss is peculiar to your situation, due, in part, to the continued expansion and high level of borrowings of your business, and is not inherent to the nature of the business. Where a business does not produce a profit within the commercially viable period, the Commissioner is not able to exercise the discretion. Therefore, the Commissioner will not exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 for the 2009-10 financial year.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You commenced your business activities in 19XX with the purchase of your first property. | Since then, various adjoining properties have been acquired and integrated into the farming business. | You are actively involved in the day to day activities of running the properties. | The business has fulltime employees that manage the day to day farming activities. | Funding for the property acquisitions and development has been provided by an associated company; with interest on the loans paid at commercial rates. | In the 2009-10 financial year, the interest paid on the loan was just over $X00,000 compared to more than $X50,000 in 200X. | Business losses incurred in recent years are the result of the interest expenses on funds borrowed to acquire and develop additional properties, low commodity prices and drought. | Your income for non-commercial loss purposes in the 2009-10 income year was above $250,000.