Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 22 December 2015
Published: March 2016
Ruling period: Year ended 30 June 20YY
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 activity (the activity) in the calculation of your taxable income for the 20XX-YY financial year? | A1: Yes

Relevant facts and circumstances: You started the activity in July 20XX. You purchased a large number of pregnant stock, which gave birth in August 20XX. Due to the weather conditions that month a large percentage of the offspring perished. As it takes 9-12 months for sufficient produce to be made by your stock, income could not be made from the activity before 30 June 20YY. The activity has made income of more than $20,000 during the first half of the 20YY-ZZ financial year. Your other income for non-commercial loss purposes was more than $40,000 but less than $250,000 in the 20XX-YY 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 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, or • the exceptions apply, or • 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, or • 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 the nature of the business activity that prevented one of the four tests being passed during the 20XX-YY financial year. You have passed one of the four tests during the 20YY-ZZ financial year and it is accepted that this was within the commercially viable period for your industry.