Private ruling: Non-commercial losses and the Commissioner's discretion
Ruling period: Year ended 30 June 2010 | Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2009

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 the calculation of your taxable income for the 2009-10 to 2013-14 income years? | A1: Yes.


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

Reasons for decision: Summary: 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 the 20XX-XX income year. 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). You commenced your primary production activity in late 2006. You expect to see the first crop in six years but commercial quantities are expected in approximately seven to nine years. In your projected profit and loss statement, you have shown that your business activity will produce income greater than deductions attributable it in the 2014-15 financial year. 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 that 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 primary production activity for the 2009-10 to 2013-14 financial years.

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. | Relevant facts: You and your former spouse commenced a primary production activity in late 20XX. This is when the seedling host trees were planted. | You planted two types of trees which are the best host trees but mature much slower in your climate. You estimate that they would need a further two to three years to mature sufficiently. | Your trees are properly maintained, watered and fertilized at the appropriate times. | The partnership was dissolved in late 20XX upon your marriage breakdown. | You are now producing as a sole trader. | You provided evidence to show that your primary production activity may start to produce in year four with some reliability. However, on conservative assumptions, it is expected that your particular type of activity will produce in years six to seven. | You have also provided an independent assessment, completed in early 20XX, which shows that you should start to see production in the next two to three years as the trees mature in age and a steady increase in production from then on. | You have provided projections showing that you will achieve a profit by the 20XX-XX financial year. | Your adjusted taxable income was more than $XXX,000 in the 20XX-XX financial year.