Private ruling: Non-commercial losses-Commissioner's discretion
Published: May 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

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 activity in calculating your taxable income for the 2011-12 financial year? Answer Yes.

Relevant facts and circumstances: You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. Significant capital was invested in the development of the property to bring it to its current scale and size. You commenced the activity in the 20XX-XX financial year. You have provided industry research and guidelines that confirm the establishment of the primary production activity should see annual profitability achieved at year 5 to 7 of the project. You expected to make a tax profit in the 20XX-YY financial year however adverse weather conditions will delay the expected profit to the next financial 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 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2E)

Reasons for decision: Summary: 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. You have provided information from an independent source that shows after the establishment of the activity it should make a profit within 5 to 7 years. You commenced the activity in the 20xx-xx financial year therefore you would be expected to return a profit in the 20yy-zz financial year. Paragraph 98 of Taxation Ruling TR 2007/6 allows a tolerance of at least one year beyond the identified profitable year when the activity does not start at the beginning of the financial year. Therefore the commercially viable period for your activity can be extended one year to the 2012-13 financial year. Consequently the Commissioner will exercise his discretion in the 2011-12 financial year.

Reasons for decision 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: