Private ruling: The Commissioner's discretion and non-commercial business losses
Date of advice: 3 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022 | Year ended 30 June 2023
Date scheme commenced: 1 July 2014

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 farming business (the activity) in the calculation of your taxable income for the 2014-15 to 2022-23 financial 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. You commenced the activity in the 2014-15 financial year. You have provided independent evidence that attests to a lead time of X years for your industry. You predict that the activity will first meet one of the four tests in the 2023-24 financial year.

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: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 (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 has prevented one of the four tests being passed. 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 2014-15 to 2022-23 financial years. | Detailed Reasoning - Please note: As you have indicated that the activity will meet one of the four tests in the 2023-24 financial year, the Commissioner cannot exercise his discretion for that year.