Private ruling: Commissioner's discretion
Published: September 2011

Ruling: 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 forestry activities in the calculation of your taxable income for the 2009-10 to 2018-19 financial years where you do not satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997? | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | You established your forestry enterprise in 2006-07 financial year. | The plantation covers about 13 hectares. | You had operational guidelines and a financial evaluation model prepared by forestry industry experts that indicate that plantation thinning should take place at 12 and 22 years, with final harvest at 33 years. | You expect your forestry activities to produce a tax profit in 2019 with the first production thinning, 12 years after you commenced. | The value of the real property is greater than $500,000. | Your income for non-commercial loss purposes is above $250,000. | 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). | 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 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. | In your case, you commenced your forestry activities in the 2006-07 financial year and do not expect to produce a tax profit until the first production thinning in 2019, or 12 years after you commenced. Industry experts have stated that plantation thinning should take place at 12 and 22 years, with final harvest at 33 years. | Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater than the expenses attributed to it. | Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your plantation activities for the 2009-10 to 2018-19 financial years where you do not satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997.




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