Private ruling: Non-commercial losses - Commissioner's discretion
Published: February 2014
Ruling period: Year ended 30 June 2008 Year ended 30 June 2009 | Year ended 30 June 2010 Year ended 30 June 2011 | Year ended 30 June 2012 Year ended 30 June 2013 | Year ending 30 June 2014 Year ending 30 June 2015 | Year ending 30 June 2016 Year ending 30 June 2017 | Year ending 30 June 2018 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 | Year ending 30 June 2024 Year ending 30 June 2025 | Year ending 30 June 2026
Date scheme commenced: 1 January 19xx

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 primary production activity in your calculation of taxable income for the 2007-08 to the 2025-26 financial years? | A1: No.

Relevant facts and circumstances: You commenced your primary production activity on 1 January 19xx under a joint venture agreement (JV) with another party. You will harvest in approximately the 2015-2020 period when you expect a profit. The JV shows that the other party; · is to keep records of all inputs by the parties, the volume and grade of all produce taken and the royalty rates applicable to produce for each harvest. They are also to keep you informed of proposed operations or treatment and organise harvesting and the sale of produce. · has full free and exclusive right liberty and power from time to time · to exercise all the rights as specified, · to establish, maintain and harvest in the manner detailed in the working plan, · to store and carry away and sell any produce derived, · to do all such other acts and things as may be necessary or desirable for the full exercise and enjoyment of its rights under this agreement. · is to determine what constitutes proper management, although they will consult with you if so requested in writing. If there is work to be performed on the property in respect of the establishment, maintenance and harvesting of the crop they will offer the work to you first. Your income for non-commercial loss purposes is less than $250,000.

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)

Reasons for decision: Detailed Reasoning - Carrying on a business: Taxation Ruling TR 95/6 discusses primary production and whether it constitute a business must be considered in terms of paragraphs 86 to 89. Paragraph 87 of TR 95/6 states in determining whether particular activities constitute the carrying on of a business, courts and tribunals have considered the following indicators to be relevant: § whether the activities have a significant commercial purpose; § the scale of the activities (a person may carry on a business in a small way); § the nature of the activities, particularly whether they have the purpose of profit making (however, profit making in a particular year is not essential); § repetition and regularity of the activities; § whether the activities are organised in a business-like manner; § volume of the operations and the amount of the capital employed; § whether the activities may properly be described as the pursuit of a hobby or recreation; § the degree of control held by the person over the development and maintenance of the land ( Case L1 79 ATC 1; (1979) Case 8 23 CTBR (NS). In Case L1 79 ATC 1; (1979) Case 8 23 CTBR (NS), the taxpayer entered into an agreement with a management company under which the company was to prepare two hectares of land for planting, to supply radiata pine seedlings and to plant them and thereafter for nine years to tend the area planted. The company further undertook, on request, to cut and market the timber and deliver it to a saw-mill or processor. It was decided the taxpayer was carrying on a business because the management company did the work at the behest of the taxpayer. It was the taxpayer and not the company which was regarded as carrying on the business of afforestation. | Detailed Reasoning - Application of law in your case: The information you have supplied shows there would be a positive response to some of the above indicators used in determining whether particular activities constitute the carrying on of a business. For example, it is accepted that there is a significant commercial purpose to the activities and that the nature and scale of the activities appear to be sufficient to considered a business. Although some of the indicators have a negative response. The JV shows the activities are organised in a business-like manner. However, this is being done by the other party in accordance with the Deed. It requires the other party to keep records of all inputs by the parties, the volume and grade of all produce taken and the royalty rates applicable to produce for each harvest. This matter is also covered in a schedule which states that the other party keep the owner informed of proposed operations or treatment and organise harvesting. In terms of the degree of control over the development and maintenance of the land, the Deed of Agreement has given all of this to the other party. The Deed states where any provision of the Deed requires a determination regarding proper management, the other party is to determine what constitutes proper management, although they will consult with you if so requested in writing. The Deed states that the sale of produce is to be directed and controlled by the other party. The Deed places restrictions on transfer of title of the land to successors. The Deed states that the rights, duties, obligations and liabilities of the parties are in every case to be several and not joint, nor joint and several. It clearly states that the relationship of the parties is one of co-venturers for the limited purpose of carrying out the project and that neither party has the authority to act for, or to create or assume any responsibility or obligation on behalf of the other party. Finally, the Deed states if there is work to be performed on the property in respect of the establishment, maintenance and harvesting of the crop, the other party will offer the work to you first at a rate equivalent to the market rate for such work if the other party is of the opinion that you could perform the work to the standard they require. If you do not accept the work, then the other party may undertake the work with State employees or call tenders to perform the work on a contract basis. Therefore applying the indicators of paragraph 87 of TR 95/6 to the role you play in the joint venture it is determined that you are not carrying a business. | Detailed Reasoning - The Commissioner's Discretion: The object of Division 35 of the ITAA 1997 is described in paragraph 35-5(1)(a) as improving the integrity of the taxation system by preventing losses from non-commercial activities that are carried on as businesses by individuals being offset against other assessable income. In your case you do not carry on a business therefore section 35-55 of the ITAA 1997 is not applicable.