Private ruling: Non-commercial losses
Date of advice: 27 April 2021
Published: July 2021
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20YY | Income year ended 30 June 20ZZ
Date scheme commenced: DDMMYY

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 the taxpayer to include losses from a business activity in the calculation of their taxable income for the years ended 30 June 20XX to 20ZZ? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion to allow you to include any losses from your business activity in the calculation of your taxable income for the income years ended 30 June 20XX to 30 June 20ZZ. It is accepted that there is a 'lead time' in the nature of your business activity and you will make a tax profit within your industry's commercially viable period. Further information on the Commissioner's discretion with respect to lead time can be found by searching 'QC 16248' on our website ato.gov.au .

Relevant facts and circumstances: You are one of two partners in a partnership that purchased a primary production property in MMYY. You earn in excess of $XXX from a separate employment. The partnership has commenced a primary production operation on the property. The business plan of the partnership is to buy young stock and when they reach breeding age, they will become the breeding stocks that will produce animals to be grown out to on pasture to meet the increasing market for natural grass­ fed pasture-raised meat. The shortest possible time frame for animals to be ready for sale is XX to YY months from the first purchase of future breeding stock. The ongoing drought delayed commencement of the activity and the purchase of the core future breeding stock until June 20XX. Some stock was purchased in June 20XX with the intention to purchase further older animals ready for breeding immediately. You recently sold AA head for approx. $AXXX and are currently looking to buy more. There were no sales in year ended 30/06/20XX but there will be sales in the 20YY and 20ZZ financial years from culled animals and excess fodder crop sales. These sales will exceed $AXXX but the partnership will have an overall loss in those years. The partnership meets the Real Property Test and the Other Assets Test. You have stated that in your industry the accepted number of years before an activity becomes commercially viable is three years. Your projected profit and loss figures show you expect the activity to make a profit in 20AA. You provided evidence of current prices from a local abattoir and a livestock production schedule which shows full production will be reached in the 20ZZ financial year.

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 subsection 35-40 | Income Tax Assessment Act 1997 subsection 35-45 | Income Tax Assessment Act 1997 subsection 35-55(1)(c)