Private ruling: non-commercial losses and the Commissioner's discretion
Published: July 2011
Ruling period: Year ended 30 June 2011 Year ending 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Will the Commissioner exercise his discretion to allow you to include any losses from your beef cattle activity in calculating your taxable income for the years ended 30 June 2011 and 30 June 2012? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You commenced a primary production activity in the 2009-10 financial year. You have 20 years primary production experience. You have obtained the relevant licences and registrations. You expect to make a loss in the 2010-11 and 2011-12 financial years. You expect to make a profit in the 2012-13 financial year. This ruling has been prepared on the basis that your primary production activity is being conducted as a business. Your income for non-commercial loss purposes will be more than $250,000 in the relevant financial years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-1, | Income Tax Assessment Act 1997 Subsection 35-55(1), | Income Tax Assessment Act 1997 Paragraph 35-55(1)(c) and | Income Tax Assessment Act 1997 Subsection 35-10(2E).

Reasons for decision: Summary: Section 35-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. The income requirement is set out in subsection 35-10(2E) of the ITAA 1997. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. In order to exercise the discretion, the Commissioner must be satisfied, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). In your case, you do not meet the income requirement as your income for non-commercial loss purposes is above $250,000. However, it is accepted that it is in the nature of your primary production activity that there will be a lead time before the activity will produce assessable income greater than the deductions attributable to it for that year. The Commissioner accepts that two years is within the commercially viable period for this industry. Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income.

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.