Private ruling: Commissioner's discretion
Ruling period: Year ended 30 June 2010 | Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 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 business in your calculation of taxable income for the 2009-10 to 2014-15 financial years? Answer: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000 in the 2009-10 financial year and you expect this will be the case in the 2010-11 to 2014-15 financial years as well. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. For example, the discretion will not be available where the failure to make a profit is for reasons other than the nature of the business such as, a consequence of starting out on a small scale, the hours worked or the need to build a client base. In your case, you commenced your business activities in the 2006-07 financial year and your projected profit and loss statement show you do not expect to produce a tax profit until the 2014-15 financial year or nine years after you commenced. This projected profit is solely reliant on you making additional capital payments from other sources to reduce your debt levels. Without these capital payments, your business activities alone would never be unable to service your debt. You have provided independent evidence that states that the normal commercial period for your type of industry is seven to ten years. While it is generally accepted that there is a period of time from commencement before a business activity of this type will become commercially viable, the Commissioner is not satisfied that the period is nine years. The reason your business activity will take nine years to become commercially viable is peculiar to your situation, due, in part, to the small scale in which it is carried on compared to the level of borrowings needed to acquire the farming land, and is not solely due to the factors inherent to the nature of the business. Where the business does not produce a profit within the commercially viable period, the Commissioner is not able to exercise the discretion. Therefore, the Commissioner will not exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 for the 2009-10 to 2014-15 financial years.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You commenced your primary production activities in 200X. | Your activities are conducted on a property of approximately XXX acres which you purchased for more than $1,000,000. You also reside on the property. | The property was purchased using a loan of over $1,000,000 as well as some capital of your own. | You are currently making regular capital payments towards your loans and selling assets, the proceeds of which will further reduce your debt. | You anticipate that your debt will be fully repaid by the 2016-17 financial year. | You project that your business activities will reach full capacity by the 2012-13 financial year. | Once your activities reach full capacity, you anticipate that you will generate approximately $4,000 per year net profit, before interest. | You anticipate that your activities will produce an overall tax profit in the 2014-15 financial year. | Your income for non-commercial loss purposes in the 2009-10 financial year was above $250,000 and you expect this will be the case for the 2010-11 to 2014-15 financial years as well.