Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 14 April 2016
Published: June 2016
Ruling period: Year ended 30 June 20XX to 20ZZ
Date scheme commenced: 1 July 20WW

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 primary production business activity in your calculation of taxable income for the 20WW-XX to 20YY-ZZ financial years? | A1: Yes.

Relevant facts and circumstances: Your income for non-commercial loss purposes is more than $250,000. In 20WW you acquired farming land. You are in the process of preparing the land primarily for farming product A, but you will also farm other produce on the land. The product A trees are being grown in pots from seeds, and are grown for a year before planting. You will employ part time farm hands to manage the activity. You have obtained independent evidence that states the trees will begin to yield fruit at around year 7 however full productivity won't occur until approximately year 12. The activity is expected to produce its first harvest in the 20ZZ-AA financial year, and is expected to be profitable in the same 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)(c)

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 his discretion. In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. 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. Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. Consequently the Commissioner will exercise his discretion in the 20WW-XX to 20YY-ZZ financial years.