Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 22 July 2016
Published: August 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise the discretion in section 35-55 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your farming business activity (the activity) in the calculation of your taxable income for the 2015-16 financial year? | A1: Yes.

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You operated a mixed farming business activity through a trust structure. The trust ceased trading in 20XX after the season harvest of the crops. In 20XX you and your spouse undertook the same mixed farming activity in a partnership structure. You incurred expenses preparing the land for and sowing the new crop in 20XX. You also incurred expenses maintaining the crop until the harvest season which commenced in 20XX. You have provided a projected cash flow statement, which show an overall profit from the activity after the first crops are harvested in the relevant financial year. You have advised of a lead time of one year between the planting of the crop to harvest.

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).

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 (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 2015-16 financial year.