Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 16 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2012

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 farming business activity in the calculation of your taxable income for the 2012-13 to 2016-17 financial years? | A1: Yes

Relevant facts and circumstances: You commenced a primary production stock farming business during the relevant financial year with the purchase of a small number of stock of a particular breed. You limited the initial purchase as you wish to breed a herd with superior genetics, utilising the best breeding stock and practices at the time. You have now established your breeding herd. While you expect to pass the assessable income test in the 2016-17 financial year and make a profit in 2017-18 financial year, it will take until the 2019-20 financial year for the herd structure and revenue to stabilise. Your other income for non-commercial loss purposes was, and is expected to be, more than $40,000 for the 2012-13 to 2016-17 financial years.

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 income 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, or • the exceptions apply, or • 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, or • 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. Therefore the Commissioner's discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been granted for the 2012-13 to 2016-17 financial years.