Private ruling: Non-commercial losses
Date of advice: 27 January 2021
Published: March 2021
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his 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 business activity in the calculation of your taxable income for the 20XX-XX and 20XX-XX income year? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion to allow you to include any losses from your business activity in the calculation of your taxable income for the 20XX-XX and 20XX-XX income years. It is accepted that 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. You originally applied for Commissioner's discretion for the 20XX-XX to 20XX-XX income years. However, as your projected profit and loss shows that you expect to make $XXX in assessable business income in the 20XX-XX income year, we cannot consider exercising the Commissioners discretion for that income year and beyond. Consequently, the Commissioner will exercise his discretion to allow you to include any losses from your business activity in the calculation of your taxable income for the 20XX-XX and 20XX-XX income years inclusive. For more information on non-commercial losses, please visit our website www.ato.gov.au and enter quick code 'QC 33774' in the search area at the top of the page.

Relevant facts and circumstances: You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You commenced a fruit growing business in 20XX where you ordered XXX fruit trees. The trees were delivered and planted in September 20XX. You have stated that there is a two year lag from the time of ordering the trees to the delivery of the trees due to the demand for young fruit trees and the grafting process that occurs. You have stated that in your industry the accepted number of years before an activity becomes commercially viable is five years. No fruit is produced in the first two years of planting the tree as all of the energy in the tree is devoted to growing a strong tree, and the fruit does not set. From year three, a small yield can be expected, which is not commercially viable. The yield per tree roughly doubles every year until full production is reached at year six or seven. Your projected profit and loss figures show you expect to meet the assessable income test (one of four tests listed in section 35-55 of the ITAA 1997) in the year ending 30 June 20XX.

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 subsection 35-45 | Income Tax Assessment Act 1997 subsection 35-55(1)(b)