Private ruling: Non-commercial losses - lead time
Date of advice: 10 March 2023
Published: 1 May 2023
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

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 dog breeding business in your calculation of taxable income for the 20XX-XX and 20XX-XX income year? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner will exercise his discretion to allow you to include any losses from your business activity of dog breeding in the calculation of your taxable income for the year ended 30 June 20XX onwards till the year ending 30 June 20XX. It is accepted that there is a 'lead time' in the nature of your activity and it will make a tax profit within the commercially viable period for the industry concerned. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au.

Relevant facts and circumstances: You operate a business of breeding designer puppies. You made a deposit on two female dogs in December 20XX. You paid $XXX for each dog and acquired them at ten weeks old in January 20XX. You paid $XXX for a male dog who you acquired at eight weeks old in January 20XX. You plan to cross breed the dogs into a designer dog. You plan to start breeding after the dogs reach maturity. The dogs reside at your residence alongside your two female pet dogs, both of whom are desexed. You plan to breed one litter per female dog every year for five years. When the first litter is born you plan to vaccinate and chip the puppies at six weeks. At eight weeks the puppies will be available to collect for customers. You plan to advertise online and utilise word of mouth to sell the puppies. You plan to expand after the first litter has been sold, however you will only continue with the cross breed. When the dogs are no longer able to breed you may give them away or keep them depending on attachment and feasibility. You currently spend ten hours a week on the business but, expect to spend more time once the first litter is born. You are not a member of a breeder organisation but, intend to join when you are close to having your first litter. You have conducted research online, spoken to a breeder for advice and consulted a local veteran who provided resources around dog breeding. You anticipate the business will produce a profit in the year ending 30 June 20XX. You satisfy the less than $250,000 income requirement as set out in subsection 35-10(2E) of the ITAA 1997 for the 2022 income 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)