Private ruling: Non-commercial losses
Date of advice: 14 February 2017
Published: July 2017
Ruling period: Year ended 30 June 20YY | Year ending 30 June 20ZZ | Year ending 30 June 20VV
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 activity in your calculation of taxable income for the 20WW-20XX, 20XX-YY and 20YY-ZZ income years? | A1: Yes

Relevant facts and circumstances: Your income for non-commercial loss purposes for the financial year 20XX-YY, 20YY-ZZ and 20ZZ-VV is less than $250,000. You are carrying on a business activity which commenced in January 20XX. The business is currently xx hectares. The property is managed in partnership between yourself and your spouse. You planted xx hectares (ha) of vines over the summer of the 20XX-YY financial year. The 20ZZ-VV financial year will see the first harvest of produce and this financial year (20YY-ZZ) will also see an expansion of the business with an additional x Ha of vines planted. The nature of grape growing means that a number of years will pass between the planting of vines and the harvesting of the first grapes to produce an assessable income. It is only in the X year of business development that the first crop (at 50% normal yield) is harvested and then not until the Y year that a full yield is delivered. You expect to make $20,000 in assessable income in the 20VV-UU 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 financial 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. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your losses are therefore subject to the deferral rule, unless 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. Therefore, the Commissioner will exercise the discretion in the 20XX-YY, 20YY-ZZ and 20ZZ-VV financial years.