Private ruling: Non-commercial losses
Published: November 2011
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

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 primary production activity in your calculation of taxable income for the 2009-10 and 2010-11 financial years? | A1: Yes.

Relevant facts and circumstances: You commenced a primary production business on a property of more than xx,000 acres part way through the 2009-10 financial year. You have engaged business consultants and agricultural consultants. You initially purchased more than x,000 animals. Sales happen regularly through the year. In each of the 2009-10 and 2010-11 financial years your business sold more than 200 animals and generated more than $xxx,000 in sales revenue. You have initially kept sales low as your emphasis is on building a breeding herd. Your breeding herd has increased significantly and you expect it to reach a size by the 2013-14 financial year that will allow the business to turn a profit. You have provided projected profit and loss statements which forecast that your business will make a profit in the 2013-14 financial year. You work full time on the farm. Your income for non-commercial loss purposes for the 2009-10 and 2010-11 financial years is in excess of $xxx,000 due to capital gains on the sale of certain assets in those years.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2) | Income Tax Assessment Act 1997 subsection 35-10(2E)

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 meet the income requirement and you pass one of the four tests · the exceptions apply · the Commissioner exercises his discretion. In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business 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 your business activity that there will be a period before a tax profit can be produced · there is an objective expectation your business activity will produce a tax profit within the 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 you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. Consequently the Commissioner will exercise his discretion in the 2009-10 and 2010-11 financial years.

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