Private ruling: Non commercial losses and the Commissioner's discretion
Ruling period: Years ended 30 June 2010 to 2032
Date scheme commenced: 1 July 2009

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 tree plantation business in the calculation of your taxable income for the 2009-10 to 2031-32 financial years? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000 in the 2009-10 financial year and you expect this will be the case for the foreseeable future. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. You planted trees in 2009 and the commercially viable period is between 20 and 30 years. In your projected profit and loss statement, you have shown that your business activity will produce income greater than deductions attributable to it in the 2021-22, 2027-28 financial years or a year either side of these years and 2032-33 financial year. Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater than the expenses attributed to it. Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your tree plantation business for the 2009-10 to 2031-32 financial years except for the financial years where the discretion will not apply as you will make a profit from this activity in those years.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You are in partnership with two others. | You planted a number of hectares consisting of a number of varieties of trees in 2009. | The commercially viable period for the trees is between 20 and 30 years. | You expect to achieve a profit from thinnings in 2022, sale of one variety in 2028 and sale of the balance in 2033. However, thinnings may occur a year either side of these years depending on the growth of the trees. | You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year and you expect your income to be more than $250,000 for the foreseeable future.