Private ruling: Non commercial loss-lead time-primary production
Date of advice: 10 February 2026
Published: 30 March 2026
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | The scheme commence on: | 1 July 20XX
Date scheme commenced: 1 July 20XX

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 primary production business activity A in your calculation of taxable income for the 20XX to 20XX financial years? | A1: Yes. | Q2: 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 primary production business activity B in your calculation of taxable income for the 20XX to 20XX financial years? | A2: Yes. | Q3: 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 primary production business activity C in your calculation of taxable income for the 20XX to 20XX financial years? | A3: No.

Relevant facts and circumstances: Your income is over $250,000. You purchased a property to undertake 3 separate primary production activities. You do not currently reside on your property but intend to build a house and live there in future years. You commenced installing infrastructure including access roads, fencing, irrigation facilities, and sheds shortly after you purchased the property. You also tested and treated the soil appropriately for the activities you intend on undertaking on the property. You are undertaking these activities on a part time basis and intend to commit yourself to them on a full-time basis in the future. Business strategy You have a business plan. You intend to undertake primary production activities A, B, and C. Your property is in a high rainfall zone that is suitable for these activities. You are starting each activity starts with smaller stock numbers as this will allow you test and learn, establish your practice, and mitigate against any possible losses through this period. You expect to make a profit through the quality and branding of your products, and engagement and relationships with the local community. Market research You have undertaken research into each of the activities you intend to undertake including competitors in the market segments. Your research has included technical information on how the activities are to be undertaken, how they can be managed as a business, demand and market conditions for your produce, and how this produce can be marketed. You have relied on the advice from industry experts, as well as the expertise of family, friends, and their connections who are involved in running successful farms for information on the requirements for establishing and running your own operation. You intend to market your produce through a variety of channels and intend to monitor sales data from these channels to refine your marketing strategies. Activity A You purchased some stock for activity A in your second year of operation and intend to steadily increase the number of stock you hold each year through the relevant period. By the end of the relevant period you expect to have enough stock for a commercially viable operation. You are fulfilling the requirements for maintaining this stock under state legislation. You are following expert advice and best practice in managing this activity. You have an established sales outlet for your stock once it is ready to sell. You have researched stock and management costs and sale prices. You intend to start selling produce in your third year of engagement in this activity and believe you can make a profit from your fifth year of operation. You have obtained independent evidence that the commonly accepted lead time for this industry is 3 to 4 years. You intend to maximise your profits and minimise your expenses by matching your stock in hand to the available resources, using your resources in line with best industry practice, and monitoring and managing your stock to maximise the amount of produce. You are currently spending about 10 hours a week on this activity and intend to employ contract labour as and when seasonally required. The time you are spending on this activity is spent on those activities common to other business in this industry. Activity B You purchased stock for activity B in the first year of the relevant period. You intend to increase your stock holdings for this activity over the first 3 years of this period. You have sourced expert advice on the suitability of your location, your operation, and the varieties of stock you are managing in this activity from recognised authorities in the industry in Australia. You have conducted thorough research on industry best practice for the produce you intend to sell from this stock and the suitability of your climate and location for this activity. You have undertaken appropriate testing and land management for farming this stock in line with industry best practice. You have followed industry guidelines in establishing your stock for this activity and its ongoing management and maintenance. You have established channels for the sale of your produce in your locality. You also intend to market your produce through a variety of channels. You expect to be selling produce from this activity within 5 years of commencing this activity and to start making profits on this produce within 6 years. You have independent evidence that the generally accepted lead time to commercial viability in this industry is 5 years. You intend to maximise your profits and minimise your expenses by purchasing supplies for this activity in bulk and negotiating the purchase price of those supplies, supplying your own labour to maintain the activity, and continually assessing and refining your practice in farming this stock to maximise your yield. This includes mechanising otherwise manual tasks where possible. You are currently spending about 10 hours a week on this activity and expect this to increase as you begin to sell your produce. The time you are spending on this activity is spent on those activities common to other business in this industry. Activity C You made an initial stock purchase for this activity in the first year of the relevant period. You also relocated some stock maintained on a hobby basis from your previous property. You have increased your stock numbers again in the second year of the relevant period. You intend to keep purchasing new stock each year and will also be using existing stock to increase your stock levels for this activity on an ongoing basis. You have sought independent expert advice from an established operator in this industry on the location and management of your stock on your property and the demand for the produce you intend to sell from this activity. According to this independent expert advice it will be at least 3 years until you can sell produce from this activity. You have also undertaken your own research into the market for this produce and your prospects of making a profit from this activity. You have gained experience in this activity through prior practice and experimentation in your hobby activities. You are complying with the appropriate Australian Standard in your conduct of this activity. Your stock for this activity currently numbers several hundred and you expect to double that by the time you can begin selling the produce. You have not taken all this stock into account in your projected income and expenses as you have set a significant number aside for private purposes. You expect to make a profit in the sixth year you are engaged in this activity. You intend to market your produce for this activity through social media and local networks, and to sell your produce through wholesale and local retail outlets, or directly to retail customers. You are currently spending less than 10 hours a week on this activity. The time you are spending on this activity is spent on those activities common to other business in this industry. Risk Management You intend to manage the risks associated with carrying on these activities through: • selection of stock varieties that will cope with weather extremes • adherence to established biosecurity protocols • comprehensive occupational health and safety management programs • diversifying your product range to mitigate market fluctuations and disruptions • regular auditing of compliance with regulatory standards • regular machinery and cybersecurity maintenance • regular reviews of your risk management practices. Record-keeping You maintain business and operational records for each type of activity, including receipts and sales dockets. These records are kept digitally to ensure compliance with your taxation obligations, and for operational management and financial planning.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 paragraph 35-10(1)(a) | Income Tax Assessment Act 1997 section 35-55 | Income Tax Assessment Act 1997 subsection 35-10(4) | Income Tax Assessment Act 1997 subsection 35-55(1) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c)

Reasons for decision: Summary: Division 35 of the ITAA 1997 prevents losses from a non-commercial business activity carried out by an individual taxpayer (alone or in partnership) from being offset against other assessable income in the year in which the loss is incurred, unless: • the individual meets the income requirement and the business activity satisfies one of the 4 stipulated tests (paragraph 35-10(1)(a)); • an exception in subsection 35-10(4) applies; or • the Commissioner exercises the discretion in subsection 35-55(1) for the business activity for one or more income years. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years under consideration. Your business losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. You have requested the Commissioner to exercise his discretion under paragraph 35-55(1)(c) of the ITAA 1997 in the 20XX to 20XX financial years. Under paragraph 35-55(1)(c) of the ITAA 1997, the Commissioner's discretion can be exercised where: • the business activity has started to be carried on but because of its nature it has not produced, or will not produce, assessable income greater than the deduction attributable to it; and • there is an objective expectation that within a period that is commercially viable for the industry concerned, the activity will produce assessable income for an income year greater than the deductions attributable to it for that year. Where a taxpayer chooses to carry on the business activities in a manner that does not produce a tax profit within the period that is commercially viable for the industry concerned, paragraph 35-55(1)(c) of the ITAA 1997 may not be satisfied. As discussed in paragraph 49 of TR 2001/14 Income tax: Division 35 - non-commercial business losses business activities of the similar kind may be grouped for the purposes of Division 35 of the ITAA. Such grouping requires consideration of matters such as the location in which they are carried on, the types of goods or services provided, the markets and market conditions in which those goods or services are traded, and the types of assets employed in undertaking those activities. Whilst the three activities are all conducted on the Property, a comparison of each activity showed that they are aimed at different markets. There is limited, if any, crossover between the activities. Each activity is capable of standing alone as an autonomous undertaking and would be capable of producing assessable income. The overall impression is that they are separate and discrete hence they would not be regarded as activities of a similar kind and therefore may be grouped for the purposes of Division 35. The Commissioner's approach to exercising the discretion under section 35-55 of the ITAA 1997 is outlined in TR 2007/6 Income Tax: non-commercial losses: Commissioner's discretion . TR 2007/6 states that the lead time discretion provided by paragraph 35-55(1)(c) of the ITAA 1997 is available for a business activity if there is an initial period from when the activity commenced where the nature of the activity prevents a tax profit from being made. For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is not making a tax profit is inherent to the nature of the business and is not peculiar to your situation. The lead time discretion is not intended to be available where the failure to make a profit or to meet a test is for reasons other than the nature of the business, such as, a consequence of starting out small or needing to build up a client base, or business choices made by an individual (for example, the size and scale of the activity, the hours of operation, and or the level of debt funding) that are not consistent with the ordinary or accepted practice in the industry concerned. As advised in paragraph 98 of TR 2007/6 a tolerance of at least one year beyond the income year otherwise identified may be allowed for lead time where an activity has commenced part way through a financial year. You have chosen to start this activity with smaller stock numbers. Based on the independent evidence you have provided you should be able to sell the produce within 3 or possibly 4 years. Once you can begin selling this produce your activity would be expected to achieve commercial viability within a year. Your projected income and expenses for this activity do not, however, show a profit until the sixth year of your operation. Economies of scale are an important factor in the profitability of activity in this industry. While you intend to supplement sales of your produce from this activity using your existing stock to increase stock levels the smaller numbers of stock you have purchased for resale in the initial years of your activity will not generate enough income to make a profit within the commercially viable period. Your activities are collocated and share common infrastructure however there are significant differences in the type of produce you intend to sell, the markets in which you will be selling it, and the conditions in those markets. These activities cannot be grouped for the purposes of Division 35 of the ITAA 1997 on the basis of similarity. Having regard to your full circumstances, it is not accepted that it is in the nature of the business activity that has prevented you from making a tax profit. Therefore, the Commissioner will not exercise his discretion under paragraph 35-55(1)(c) of the ITAA 1997 for the years in question.