Private ruling: Non-commercial losses
Date of advice: 13 December 2019
Published: February 2020
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise the discretion to allow you to include any losses from your business in the calculation of your taxable income for the 2018 to 2022 income years? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted there is a 'lead time' in the nature of your business activity and you will pass a test or make a tax profit within your industry's commercially viable period. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au As the commercially viable period for the product A growing is five years (and six to seven for your product B), the Commissioner's discretion has been granted for the 2018 to 2022 income years.

Relevant facts and circumstances: You purchased the farm 2018 with the plan of operating a truffle farm. You commenced your business activity on 1 January 2018. You operate a mixed business with product A being the main source of income and product B as a secondary business. The soil type and altitude are ideal for product A production. Prior to the actual planting of trees the preparation work recommended by product A experts was undertaken. This included preparation of the soil, structural improvements, including fencing and the setting up the irrigation system. The trees were planted in April 201X. Product A are grown on the roots of the specific trees. The trees are inoculated with product A prior to planting. The trees take tour to five years to mature enough before product A will fruit. There is no product produced prior to this time. Once production commences the growth is exponential and full production should occur in ten to twelve years. Your application only covers the initial period until production commences. Product B trees will also produce product B as a by-product that can be sold. However the trees have to fully mature until this will occur so again there is a lead time. Your first projected sale of Product B will be in the 2022 income year. The income has been based on a conservative estimate of the product A able to be produced. The lower wholesale price has been used; there is limited scope for sale at a retail level at a price approximately double the wholesale price but this has not been factored in. In the initial two to three years the costs are high as the plantation is being established. Once this plantation is established the costs will stabilise until harvesting commences. Based on your current projections, you expect to meet the $20,000 assessable income test in the 2023 income year and thereafter and producing a net operating profit for the 2024 income year. You have cited the Australian product A Growers association website which states that growers have been consistently getting product A after four to five years with the new technology being employed. Product B have an accepted lead time of six to seven years. Your income for non-commercial loss purposes is less than $250,000.

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 35-33 | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(b) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c)