Private ruling: Non-commercial losses
Published: April 2014
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in your calculation of taxable income for the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: You commenced a primary production business in March 20YY. Your expenses were incurred in the 20XX-YY financial year however your crop would not be harvested until the 20YY-ZZ financial year when you pass the assessable income test of Division 35 of the ITAA 1997. You meet the income requirement of Division 35 of the ITAA 1997.

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)(b)

Reasons for decision: Summary: For the 2009-10 and later income years, division 35 of the ITAA 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. 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 an initial period of time before it can be expected to pass one of the four tests • there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry. Paragraph 98 of TR 2007/6 states; … and to cater for those business activities which do not commence right at the start of a particular income year, but towards the end of that year, a tolerance of at least one year beyond the income year otherwise identified as the end of this period will be applied… In your circumstance you cultivated the land late in the 20XX-YY financial year and therefore could not reasonably be expected to pass a test until you planted a crop to be harvested in the 20YY-ZZ financial year. You expect to pass a test in the 20YY-ZZ financial year and therefore a tolerance of at least one year beyond the income year otherwise identified as the end of this period will be applied. Consequently the Commissioner will exercise his discretion for the 20XX-YY financial year.