Private ruling: non commercial losses - Commissioner's discretion
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011

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 to 2010-11 financial years. | A1: No.

Relevant facts and circumstances: You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year. You started your primary production and breeding activity in early 200X for the domestic and overseas market. You also have another breeding activity on the property that you have been running since 200Y. Some livestock will be available for slaughter and sale for commercial meat purposes in the 2010-11 financial year. From a website article an independent source has provided information on the optimum period for the best production for the type of livestock. Another source states that income is usually obtained within a number of years from commencement of the activity and overheads and other factors will determine when a profit will be realised.


Reasons for decision: Summary: The Commissioner will not exercise the discretion under paragraph 35-55(1)(c) of the ITAA 1997 for the 2009-10 and 2010-11 financial years on the basis that that the information supplied does not provide objective evidence of the commercially viable period to make a tax profit for your type of activity. | Detailed Reasoning - Detailed reasoning: Under paragraph 35-55(1)(c) of the ITAA 1997, the Commissioner's discretion can be exercised where the business activity satisfies these requirements. · for an applicant who carries on the business activity who does not satisfy subsection 35-10(2E) (income requirement) for the most recent income year ending before the application is made - the business activity has started to be carried on and, for the excluded years: (i) because of its nature, it has not produced, or will not produce, assessable income greater than the deductions attributable to it; and (ii) there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsections 35-10(2) and (2C). The income requirement under subsection 35-10(2E) of the ITAA 1997 is satisfied 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. You have not provided objective evidence of the commercially viable period to make a tax profit for your activity. We acknowledge that you have provided a business income and expenditure history and projections. A letter from an independent source states that income is usually obtained within three and a half years to four years from commencement of the activity and overheads and other factors will determine when a profit will be realised. You have not provided objective evidence of the commercially viable period to make a tax profit for the breeding activity. Therefore, without this information the Commissioner is not able to conclude that the X years your activity will take from the time of commencement of the livestock production and breeding activity and the Y years from the time of commencement of the breeding activity to the achievement of a tax profit is within a period that is commercially viable for your industry. The Commissioner will not exercise the discretion under paragraph 35-55(1)(c) of the ITAA 1997 and the losses from your business will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997.

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.