Private ruling: non-commercial losses
Ruling period: Year ended 30 June 2010 | Year ending 30 June 2011 | Year ending 30 June 2012
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you required to defer any losses from your share of the cattle breeding business in your calculation of taxable income for the 2009-10, 2010-11 and 2011-12 financial years? No


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 35-10(2) | Income Tax Assessment Act 1997 Subsection 35-10(2E)

Reasons for decision: Summary: Division 35 of the ITAA 1997 prevents losses from non-commercial business activities (being conducted by an individual or a partner in a partnership) being offset against other assessable income in the year the loss is incurred. The loss is deferred unless: (a) you pass the income requirement and one of the four tests; (b) the exception applies; or (c) the Commissioner exercises his discretion. You passed the income requirement in the 2009-10 financial year and you anticipate you will pass it in the 2010-11 and 2011-12 financial years. Section 35-25 of the ITAA 1997 in part states for the purpose of applying the test in section 35-30 (assessable income test) where you carry on a business activity in an income year as a partner, ignore any part of the assessable income from the business activity for the year that is attributable to the interest of a partner that is not an individual in the partnership net income or partnership loss for the year. You are a partner in a partnership in which one of the partners is a proprietary limited company. The company is entitled to receive a distribution from the partnership. After ignoring the assessable income attributable to the interest of the company, you passed the assessable income test in the 2009-10 financial year. As you have passed the income requirement and also passed one of the four tests, the rule under subsection 35-10(2) does not apply to you. You are therefore not required to defer you share of the losses from the partnership business in the 2009-10, 2010-11 and 2011-12 financial 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: A partnership operates a beef cattle breeding business. | You are one of the partners in the partnership of which one partner is a proprietary limited company. | In recent years you have spent money on: | · Fencing of grazing areas into small paddocks to control the cattle herd; | · Development of a complex matrix of watering points, ensuring that cattle are always well watered and well fed; | · Movement of cattle to fresh paddocks on a weekly basis, preventing soil and pasture degradation; and | · Rotational use of all the grass, reducing the risk of fire. | · The partnership owns the land, plant, equipment and livestock. | The day to day management of the business is carried out by a manager and employees. | You expect to make a tax profit in the 2012-13 financial year. | Independent Evidence: You supplied independent reports from industry experts. | Authors stated that the "traditional" grazing industry is unviable and unstainable unless changes are made to watering methods, fencing, control of the herd and herd fertility. | If the cattle grazing industry invests the necessary capital and develops waters and fences, individual operations can return to sustainable profitability and environmental sustainability in 5 to 7 years. | Another expert stated the beef industry in this part of the country requires different genetics and there is an important debate to be had about selecting for size at the expense of reproductive capacity. The current focus on breeding cattle for growth rate and size - responding to signals from the fattening and growing-out of the business, meant the interval between calving had blown out. He also said that this is one reason the beef industry in this part of Australia is currently unprofitable and unsustainable. | The partnership has taken steps to implement steps suggested by various industry experts as follows: | Control of the entire herd using quality grazing management systems, utilising the areas where intensive fencing and water infrastructure have been developed; | · Early weaning of calves; | · Keep cattle close to yards for quick musters; | · Increasing the bull percentages in heifer mobs; and | · Introduction of "composite" bulls. | These strategies are specifically aimed at increasing calving percentages. (herd productivity). | You passed the income requirement, as outlined under subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997), in the 2009-10 financial year and also expect to pass the requirement in the 2010-11 and 2011-12 financial years. | You passed the assessable income test in the 2009-10 financial year and also expect to pass this test in the 2010-11 and 2011-12 financial years.