Private ruling: Non-commercial losses and the Commissioner's discretion
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 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 nut trees activity in the calculation of your taxable income for the 2009-10 to 2013-14 financial years? | A1: No.


Relevant legislative provisions: 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: 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 meet 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 your 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 the commercially viable period for your industry. In your case, you purchased an established nut tree farm where the majority of the trees were 11 years old. While it is accepted that you have planted a large number of trees since purchasing the property and you have purchased equipment to manage the trees, this does not affect the lead time allowable for making a tax profit. Based on the number of trees originally planted, it is clear that there were sufficient to be commercially viable. Therefore, the period which is considered commercially viable would have exhausted in approximately 2007-08. You project that you will make a tax profit in the 2014-15 financial year. It is considered that the reason your activity will not make a tax profit in a commercially viable period is because of the costs involved in purchasing equipment and also planting additional trees and not because of the nature of the activity. Therefore, the Commissioner can not 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 business for the 2009-10 to 2013-14 financial years as the commercially viable period has expired.

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 purchased an established nut plantation in the 2006-07 financial year. | The ages of the established trees were as follows - | XX00 which were 11 years old | Y00 which were 7 years old | Z,000 which were 4 years old | You planted an additional 2,000 trees and purchased equipment to manage the trees and harvest the crops. | Nut trees produce a very low yield in about four or five years and do not mature to have a high and stable yield until twelve or thirteen years. | You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year and is likely to be more than $250,000 for the foreseeable future. | You have provided projections that show that your income will be more than your expenses for the activity in the 2014-15 financial year.