Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 21 April 2016
Published: June 2016
Ruling period: Year ended 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 (the activity) in the calculation of your taxable income for the relevant financial year? | A1: Yes

Relevant facts and circumstances: You purchased a rural property on dd/mm/yyyy with the intention of carrying on the activity. You commenced the activity in the relevant financial year. The activity is run under a partnership arrangement with your spouse. You have constructed enclosures and breeding pens on the property for the activity. In 20XX you purchased a number of stock, with the aim of breeding and hand rearing the offspring for sale. You purchased both juvenile and adult breeding stock. You predict that the activity will first meet one of the four tests in the 20XX-XX 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 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 his discretion for the relevant financial year.