Private ruling: non commercial losses
Published: October 2011
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ending 30 June 2012
Date scheme commenced: During 2009

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 your calculation of taxable income for the 2009-10 financial year? | A1: 

Relevant facts and circumstances: You commenced a vinification business a number of years ago. You source grapes from several vineyards. The grapes are processed, fermented and matured in barrels. Once the wine is bottled it is then aged before it is released for sale. You have submitted independent evidence that is it is standard practice to age wine in oak barrels You have also provided evidence that bottle aging improves the quality of wine and that for the production of very fine wines bottle aging can take many years. You expect to meet the assessable income test in the 2012-13 financial year. Your income for non commercial loss purposes is under $250,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 35-55(1)(a) | Income Tax Assessment Act 1997 paragraph 35-55(1)(b) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2) | Income Tax Assessment Act 1997 subsection 35-10(2E)

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the Income Tax Assessment Act 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 · the Commissioner exercises his discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your 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 the business activity that there will be a period of time before it can be expected to pass one of the four tests · 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. Consequently the Commissioner will exercise his discretion in the 2009-10 to 2011-12 financial years.

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