Private ruling: Non-commercial losses - lead time
Date of advice: 8 March 2023
Published: 24 April 2023
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
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 primary production business in your calculation of taxable income for the 20XX-XX to 20XX-XX income years? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner will exercise his discretion to allow you to include any losses from your business activity of growing pistachio trees in the calculation of your taxable income for the year ended 30 June 20XX onwards till the year ending 30 June 20XX. It is accepted that there is a 'lead time' in the nature of your activity and it will make a tax profit within the commercially viable period for the industry concerned. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au.

Relevant facts and circumstances: You operate a primary production business which grows XXXX trees and XXXXX on a XX acre property. You commenced your primary production business during the 20XX financial year. You initially grew XXXXX but, decided your main crop would be XXXX. Due to the growth time and demand you need to order a season in advance. You made an order and placed a deposit on XXX XXXX trees in the month of August 20XX. You choose to purchase budded trees because of the increased successful rate, this required the plants to be held in a greenhouse which delayed planting. You are planning to plant XXX XXXX trees over XX acres in the month of August 20XX. You are currently not growning any XXXXX. You intend to grow XXXXX in-between the XXXX trees if you have the time. You will decide if you grow a XXXXX crop on a year-by-year basis. You have completed soil sampling, clearing of land and fertilisation of the soil in preparation for planting. You have purchased a tractor and equipment for irrigation and have constructed infrastructure for the plantation. You will manage the XXXX trees on your own until maturity where you intend to employ seasonal workers for picking and packaging. You consulted with local growers for guidance on how to go about growing XXXX trees. You have provided information from independent parties to verify your business model will be profitable within a commercially viable period. The information provided also stated the XXXX trees will produce fruit in the fifth and sixth season but, may not produce enough income till the seventh season to breakeven. You provided forecast revenue and expense for financial years 20XX through to 20XX. You anticipate that the business will produce a profit in the year ending 30 June 20XX.

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 paragraph 35-55(1)(b)