Private ruling: Subject
Published: June 2015
Ruling period: Years ended 30 June 2014 | Years ending 30 June 2015 | Years ending 30 June 2016 | Years ending 30 June 2018 | Years ending 30 June 2019 | Years ending 30 June 2020 | Years ending 30 June 2021 | Years ending 30 June 2022 | Years ending 30 June 2023 | Years ending 30 June 2024
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your plantation enterprise in the calculation of your taxable income for the 2012-14 to 2023-24 financial years? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000 in the 2013-14 financial year and you expect this will be the case in the 2014-15 to 2023-24 financial years as well. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. You established your plantation in the 2009-10 financial year. In your projected financial forecast, you have shown that your business activity will not produce income greater than deductions attributable to it for 15 years and it is expected the activity will generate a profit in the 2025 income year. You have provided evidence from independent sources that indicate that the commercially viable period for plantations of the same type of tree that you are growing is between 15 and 20 years. Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater that the expenses attributed to it. Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your plantation enterprise for the 2013 -14 to 2023-24 financial years.

Relevant facts: You commenced your plantation enterprise in the 2009-10 income year. | The independent evidence you provided indicates that the plantation will reach a harvestable size within 15 to 20 years. | In your financial project statement, you anticipate your plantation will be harvested in 15-20 years and will produce a profit in the 2025 year. | Your adjusted taxable income for non-commercial loss purposes for the 2013-14 financial year was more than $250,000. | You expect your adjusted taxable income to be more than $250,000 for the foreseeable future.