Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 16 December 2015
Published: February 2016
Ruling period: Year ended 30 June 20XX to year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your timber growing activity in your calculation of taxable income for the relevant year to 2031-32 income years? | A1: Yes.

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. In the relevant financial year your partnership commenced an activity growing timber. The land is to be prepared and planting commence in the relevant financial year. You have provided a copy of your business plan and details of projected income and expenses for the relevant year to 2031-32 income years, inclusive. The business will produce assessable income after approximately 12 years from the thinning process and then when harvesting the final crop in approximately year 18. You may thin and harvest the timber earlier, depending on the size of the trunks of the trees at the time. You have projected a cumulative profit as at the end of the 2032-33 income year. You have provided independent evidence that attests to a lead time of up to 18 years for your industry and particular timber grown.

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), and | Income Tax Assessment Act 1997 paragraph 35-55(1)(b).

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: • you satisfy the income requirement and you pass one of the four tests, or • the exceptions apply, or • the Commissioner exercises his discretion. The relevant discretion may be exercised for the income year in question where: • it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests, or • there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a 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 prevents one of the four tests being passed for a period. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. Therefore the Commissioner's discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been granted for the relevant year to 2031-32 financial years.