Private ruling: Non-commercial losses and the Commissioner’s discretion for lead time
Date of advice: 2 November 2018
Published: February 2019
Ruling period: Year ended 30 June 2018 to 30 June 2023
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise the discretion in to allow you to include any losses from your primary production business in the calculation of your taxable income for the 2017-18 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 carry on a business as a partnership producing nuts. You commenced business operations in the 20XX-XX financial year. On X February 20XX the partnership ABN was registered. On X February 20XX the trees were ordered and a deposit was paid. In March 20XX the main irrigation was installed and in May 20XX the sub-main irrigation was installed. In September 20XX the trees were paid for in full and planted. You have provided independent evidence that attests to a lead time of seven years for your industry. You will make $20,000 in assessable income in the 20XX-XX 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 financial years, Division 35 of the 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 ● the exceptions apply ● the Commissioner exercises his discretion. 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 financial years under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. The relevant discretion may be exercised for the financial 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 ● 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. Consequently the Commissioner will exercise his discretion in the 2017-18 to 2022-23 financial years.