Private ruling: Non Commercial Losses
Published: June 2015
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022.
Date scheme commenced: 1 July 2015

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 enterprise in the calculation of your taxable income? | A1: Yes.

Relevant facts and circumstances: Your income for non-commercial loss purposes is more than $250,000. You are currently in the process of purchasing a property with the aim of converting into a food orchard. Seeds will be propagated and grown in a nursery. Once the land has been cleared, prepared and irrigation developed, the root stock will then be planted over the farm in two stages. Stage one is planned for XXXX and the balance to be planted in XXXX (Stage two). You have obtained an independent who have advised that typically the food takes X years (post grafting/budding) to produce the food and X years to reach full maturity. By XXXX, the farm is expected to produce its first harvest from the stage one plantation. The first harvest for stage two is expected to be in XXXX. The nature of this activity suggests that the business will take X years to become profitable. You expect to make a profit in the XXXX financial year.

Relevant legislative provisions: Division 35 of the Income Tax Assessment Act 1997

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 2016 - 2022 financial years.