Private ruling: Non-commercial losses
Date of advice: 16 February 2017
Published: July 2017
Ruling period: Year ended 30 June 20ZZ
Date scheme commenced: 1 July 20YY

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 2015-16 income year? | A1: Yes

Relevant facts and circumstances: You are carrying on a business which commenced on 1 July 20XX. Your income for non-commercial loss purposes for the financial years 20YY-ZZ is more than $250,000. The first livestock were acquired in 20XX and additional stock was purchased later in the year. The first livestock sale was made in the 20YY-ZZ financial year. You have progressively increased your breeding herd and have a total of xx head on hand. You have provided your profit and loss forecasts. You have provided projections to show you will pass a test and/or make a profit within the commercially viable period for the industry.

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)(c)

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the Income Tax Assessment Act 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 ● the exceptions apply ● the Commissioner exercises his discretion. In your situation, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless 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 before a tax profit can be produced ● there is an objective expectation your business activity will produce a tax profit 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 you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. Therefore, the Commissioner will exercise the discretion in the 20YY-ZZ financial year.