Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 1 June 2019
Published: July 2019
Ruling period: Financial year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion to allow you to include any losses from your primary production breeding business in the calculation of your taxable income for the 20XX-XX financial year? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted 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 non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You have been involved in your particular primary production industry for many years. In the 20XX-XX financial year you formed a primary production breeding business (the activity), which carried on two related activities: 1. primary production breeding 2. utilising vacant land for agistment and syndicate activity whilst holding majority ownership, to broaden brand awareness. After re-evaluating the activity in 20XX you chose to focus on the primary production breeding activity only, as the other activity placed a heavy burden on cash flow and the risks associated were too high. Your business strategy is to use your knowledge and industry experience, combined with that of established industry experts, to select stock with bloodlines most aligned for commercial sale at your price point. You conduct your activity yourself (with a reputable vet mentoring) and work with them until they are at sale age. You then send them to professionals to prepare for selling to ensure maximum sale price. You have had your sold progeny perform well in competition, and you will have more in competition later in 20XX. You believe that this competition results that will increase the sale price of your subsequent stock. You have a number of stock for sales next year and three stock pregnant which will give birth in 20XX. You are planning on covering three stock for next year to continue building the brand and subsequent sales. You state that by its nature your primary production breeding activity requires a lengthy lead time to accumulate and build a quality portfolio of high quality stock. You have provided your activity financials that show a steady increase in sales income with expenses having peaked in the 20XX-XX financial year and forecast to reduce. You expect to make a profit from the activity in the 20XX-XX financial year, which is XX years after the year of commencement. For the 20XX-XX financial year you did not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 due to an increase in non-business related income. You do not expect to fail the income requirement in the 20XX-XX financial year.

Relevant legislative provisions: 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)(c)