Private ruling: Non-commercial losses and the Commissioner’s discretion
Date of advice: 26 February 2019
Published: May 2019
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023
Date scheme commenced: 1 July 2018

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 activity in your calculation of taxable income for the 2019 to 2023 financial years? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. 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 satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You purchased a property to establish a fruit farm. You operate a primary production business activity in a partnership. You intend to make $20,000 in assessable income in the 2023 financial year. You intended to plant 200 trees in December 2018, which would have based on your initial projections provided achieved a possible income of well in excess of $20,000 by 2023. Only a small number of trees were planted on 27 January 2019 because of the shortage of supply The delay in delivering the fruit trees is due to an industry wide shortage of available saplings. You have a letter from the supplier about a chronic shortage of grafted root stock for the past four to five years. The letter also highlights that the existing stock at the nursery was made available, on a pro-rata basis depending on the size of the farm. The industry standard for these fruit trees to reach full production is between four and five years. You intend to expand your farm using the staggered approach by planting saplings when they become available. You currently have a small herd of cattle to help maintain the property until the orchard is planted. You intend to increase numbers of cattle in the future. You will become a member of the Marketing Association for the industry. You are currently repairing the property and improving it in readiness for the orchard. Assumptions The projections provided have been based on a further planting of 150 grafted root stock in December 2019. The average per tray has been set using the actual market high-lows for July 2017. Based on the current adjusted projections because of the unavailability of root stock you still are projected to achieve sales in excess of $20,000 by year five with sales well in excess of $20,000 by year six.

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)(b)