Private ruling: Non-commercial losses
Published: October 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2011

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 primary production business activity in the calculation of your taxable income for the 2011-12 to 2014-15 financial years? | A1: Yes

Relevant facts and circumstances: You commenced a mixed farming primary production business during the 20** financial year. Since starting the business it has suffered a plague, a flood, a drought and you have lost your other employment. Despite this, you are on target for the business to be profitable by the 20** financial year. To combat the above issues you have made improvements on key areas like water storage, irrigation and soil management. This will also allow you to expand the business operation and enable you to diversify the plantation by introducing other crops. You submit that provided you do not suffer setbacks like previous years, turnover should exceed $20,000 by the 20** financial year. You advised that income for non-commercial loss purposes were/will be more than $40,000 but less than $250,000 for the 20** to 20** financial years.

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

Reasons for decision: Summary: For the 2009-10 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 accepted that you will pass one of the four tests or make a tax profit 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 2011-12 to 2014-15 financial years.