Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 25 August 2015
Published: August 2015
Ruling period: Years ended 30 June 2016 to 2045
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise the discretion in section 35-55 of the Income Tax Assessment Act 1997 to allow you to include any losses from your plantation business activity in the calculation of your taxable income for the 2014-15 to 2045 financial years? | A1: Yes

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You have been carrying on a plantation business for a number of years under a partnership arrangement. You have previously obtained a private ruling where the Commissioner exercised his discretion in relation to your plantation business losses. The plantation was harvested during the 2014-15 financial year. You have commenced another plantation during the 2015-16 financial year on the same property. The conditions relevant to all of the parameters used during the first plantation have not changed. However you have prepared a new business plan for the new plantation to incorporate new understandings of environmental considerations, changes to the industry over time and the advantages to be gained from initiating a second rotation on the same property. You have provided independent evidence that attests to a lead time of 30 years for your industry and particular plantation grown. The business will produce assessable income after 15 and then 20 years from the thinning process, then when harvesting the final crop in 2045.

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 Income Tax Assessment Act 1997 (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's discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been granted for the 2015-16 to 2044-45 financial years.