Private ruling: The Commissioner's discretion and non-commercial business losses
Date of advice: 26 June 2015
Published: June 2015
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your mixed farming business activity in the calculation of your taxable income for the 20WW-XX financial year? | A1: Yes.

Relevant facts and circumstances: You commenced a mixed primary production business. You purchased a large number of stock to begin the breeding program in the 20WW-XX financial year. The natural increase in stock was not available for sale until the 20XX-YY financial year. At the end of the 20WW-XX financial year you had benefited from a large number of natural increase in stock. Further, cereal crop was planted in 20XX and harvested later that year, which spans the 20WW-XX and 20XX-YY financial years. You provided evidence that during the 20XX-YY financial year you passed the $20,000 assessable income test. Your other income for non-commercial loss purposes was more than $40,000 but less than $250,000 for the 20WW-XX financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Paragraph 35-55(1)(b)

Reasons for decision: Summary: For the 20AA-BB and later income 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, or • the exceptions apply, or • the Commissioner exercises his discretion. The relevant discretion may be exercised for the income 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, or • 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 acknowledged that you have passed one of the four tests within the commercially viable period for your industry. Therefore the Commissioner's discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been granted for the 20WW-XX financial year.