Private ruling: Non commercial losses - Commissioner's discretion
Published: July 2011
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ending 30 June 2012
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 farming activities in your calculation of taxable income for the 20XX-XX to 20XX-XX financial 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, the income requirement has not been satisfied as your taxable income, for non commercial loss purposes, is above $250,000 and you expect this to be the case for the 20XX-XX and 20XX-XX financial years as well. 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 farming activities in the 20XX-XX financial year. Your activities include livestock breeding as well as growing livestock for on sale. You project your farming activities will produce a tax profit in the 20XX-XX financial year or approximately X years after you commenced. You have not provided any independent evidence of the commercially viable period for this type of business activity. However, you have extensive experience in similar business activities and, in your experience, this type of business can take up to X years to make a tax profit. 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 livestock farming activities for the 20XX-XX to 20XX-XX 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. | Your business is based on livestock breeding activities and growing livestock for on sale. | You operate and manage the business yourself and you have a degree in agriculture as well as extensive industry experience. In your experience, this type of business can take up to X years to reach a positive financial outcome. | You project that your activities will produce a tax profit in the 20XX-XX financial year. | Your income for non-commercial loss purposes in the 20XX-XX financial year was above $250,000 and you expect this will be the case for the 20XX-XX and 20XX-XX financial years as well.