Private ruling: Non-commercial business losses - Commissioner's discretion - lead time
Published: December 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

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 business in your calculation of taxable income for the 2014-15 and 2015-16 financial years? | A1: Yes.

Relevant facts and circumstances: You and your spouse have carried on a primary production business for a number of years. However you decided to change the crop as the new crop is more suitable for your local area and has a better yield and rate of return. You planted a large number of plants on your property in 20XX. You plan on selling the fruit at local stall markets, local fruit and vegetable stores and directly to wholesalers. You have provided independent evidence in relation to the yields produced from new plants which states that the plant will flower about 12-15 months after planting the cutting. You satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. Your projected income and expenditure shows expected assessable income of more than $20,000 in the 2016-17 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 subsection 35-10(2E) | Income Tax Assessment Act 1997 paragraph 35-55(1)(b)

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 satisfy the income requirement and you pass one of the four tests • the exceptions apply; or • the Commissioner exercises his discretion. You have requested the Commissioner to exercise his 'lead time' discretion for the 2014-15 and 2015-16 financial years so that you are not required to defer any losses from your primary production business activity under the non-commercial loss provisions. The 'lead time' discretion may be exercised for the income years 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; and • 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 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. Consequently the Commissioner will exercise the discretion in paragraph 35-55(1)(b) of the ITAA 1997 to allow you to include any losses from your business in your calculation of taxable income for the 2014-15 and 2015-16 financial years.