Private ruling: Non-commercial losses
Published: March 2014
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2012

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 2017-18 financial year? | A1: Yes.

Relevant facts and circumstances: You commenced a primary production activity late in 20XX. You sought advice and acted on that advice from an industry expert on the best practices for your activity however the process did not proceed as expected. A report was subsequently prepared for you for the purposes of legal proceedings against that industry expert. The purpose of the report was to provide an opinion on, amongst other things, the extent of damage done to your primary production activity potential as a result of advice given. The report stated due to the significant damage it should be treated as a complete failure and for the activity to be recommenced which you did in late 20YY. You expect to pass a test in the 2018-19 financial year which is within the accepted lead time for your industry. You had a previous private ruling allowing losses in the relevant financial years. Your taxable income for non-commercial losses purposes from other sources is less than $250,000.

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 a 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. Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. Consequently the Commissioner will exercise the discretion for the 2017-18 financial year.