Private ruling: Non-commercial losses - Commissioner's discretion
Published: June 2013
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012
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 primary production activity in your calculation of taxable income from the 2009-10 to the 2011-12 financial years? | A1: Yes.

Relevant facts and circumstances: Your income for non commercial loss purposes is above $250,000. You commenced your primary production activity in 200X. Your activity was adversely affected by the drought in the 200Y, 200Z and 200V years. You have provided an independent source that states that the commercially viable period for your primary production activity is between seven to ten years. You have provided a profit and loss statement showing you expect to produce assessable income greater than deductions attributable to it in the 2012-13 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-55(1)(c)

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 (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business 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 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. You have provided information from an independent source that shows after the establishment of the activity it should make a profit within 7 to 10 years. You commenced in the 200X financial year therefore you would be expected to return a profit in the 2010-11 financial year. Paragraph 98 of Taxation Ruling TR 2007/6 allows a tolerance of at least one year beyond the identified profitable year when the activity does not start at the beginning of the financial year. Therefore the commercially viable period for your activity can be extended one year to the 2011-12 financial year. Consequently the Commissioner will exercise the discretion for the 2009-10 and 2010-11 financial years and extend the discretion to the 2011-12 financial year.