Private ruling: Commissioner's discretion for non-commercial business losses
Published: October 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: The scheme has commenced

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 in the calculation of your taxable income for the 2013-14 financial year? | A1: Yes

Relevant facts and circumstances: You and your spouse started a primary production farming business (the business) in the relevant financial year. During that year you purchased a number of products and as a result made a loss. You and your spouse jointly leased a property on which to run the business. Both you and your spouse are employed in unrelated fields to the business. Your relatives have had previous experience in farming therefore you are confident that this knowledge and experience will assist in making your business a successful operation. Since the start of the business you have experienced poor weather conditions and unexpected high stock losses. This, along with other factors, has impacted on the profitability of the business in the early stages. You will be expanding the business during the subsequent financial year when you purchase more stock. You have also begun fertilizing a paddock which will be used as a part of the business operation. You have provided cash flow projections for the subsequent financial year of greater than $20,000. Your other income for non-commercial loss purposes was more than $40,000 but less than $250,000 in the subsequent financial year.

Relevant legislative provisions: 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 subsequent financial year.