Private ruling: Non-commercial losses
Published: March 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2012

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 for the relevant financial years? | A1: Yes.

Relevant facts and circumstances: You are a partner in a primary production activity that commenced in the 20YY financial year after purchasing a property late in the 20XX financial year. You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. You have not provided an independent source stating what the commercially viable period is for your primary production activity. You have provided a projected income and expenditure statement showing a tax profit will be produced in the 20ZZ 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 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2E)

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 and do not come under any of the exceptions. 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. In your circumstances you commenced a primary production activity in the 20YY financial year. Although you have not provided an independent source stating what the commercially viable period is for your primary production activity, it is generally accepted that a profit can be expected within the third or fourth year of commencing this type of activity. Consequently the Commissioner will exercise his discretion in the relevant financial years.