Private ruling: Non-commercial losses
Published: June 2012

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the 2010-11 financial year? | A1: Yes

Relevant facts and circumstances: You operate your livestock breeding activity in a partnership. You purchased commercial stock with the intent of breeding and selling resulting progeny through the industry auction. Your income for non commercial loss purposes is more than $250,000 In relation to your breeding business, it usually takes three years from the time breed stock are purchased, mate them, allow a gestation period and to sell their progeny. For the breed stock to be and remain commercially viable, their offspring must also perform. As most stock do not perform for a number of years, the time before the offspring can be sold at the industry auction can be 4-5 years. You will make a profit a year later than you originally intended to due to some stock not being ready to sell due to their late development and the progeny not having the required success. You will still make a profit within the commercially viable period for your industry.

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)(c)


Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | 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 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. | Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. | Consequently the Commissioner will exercise his discretion in the 2010-11 financial year.