Private ruling: Non-commercial losses
Published: April 2014
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

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 business activity in your calculation of taxable income for the 2011-12 financial year? | A1: Yes.

Relevant facts and circumstances: You commenced a primary production business in the 200X financial year in partnership. You expect to generate a profit in the 2013-14 financial year with significant increases in the 2016-17 financial year when a full level of harvest is expected. Your income for non-commercial loss purposes exceeded $250,000 for the 2011-12 financial year due to a capital gain in that year. You have provided an independent industry source that provides that a tax profit can be expected within six years.

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 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2E)

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 meet the income requirement and you pass one of the four tests • the exceptions apply • the Commissioner exercises the discretion. In your situation, you do not satisfy the income requirement and do not come under any of the exceptions. The relevant discretion may be exercised for the income year in question where: • it is in the nature of your business activity that there will be a period before a tax profit can be produced • there is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry. In your circumstances you commenced a primary production business in the 200X financial year and will produce a tax profit in the 2013-14 financial year. The independent industry source advises that a profit could be expected within six years. Consequently the Commissioner will exercise the discretion in the relevant financial year.