Non-commercial business losses rules: Division 35, ITAA 1997

Commerciality of the product

We do not consider the commerciality of your proposals from an investment perspective - indeed, we disclaim expressly any representations in this regard.

However, this doesn't mean that we are entirely unconcerned about the commerciality of the product. Whether or not a product 'stacks up' commercially can be a clear indicator of the purposes associated with an outgoing to purchase the product, or whether a business is capable of being carried on.

Many individuals, alone or in partnership, participating in arrangements like agribusiness schemes may be affected by Division 35. These provisions concern the deductibility of losses from the carrying on of a business activity.

In many schemes, losses will only be able to be offset against other income if the Commissioner exercises his discretion to allow those losses in the year incurred.

For the Commissioner to exercise this discretion, we need to ensure that the arrangement to be ruled on is commercially viable, and that the income projections are credible and fully supported by appropriate expert independent evidence. We may seek to independently verify certain key assumptions underpinning these projections.

We have seen some very wide variations - for example, in the number of plants that are expected to be grown per hectare, expected yields and so on - which on an initial reading appear inexplicable.

There may be valid commercial reasons for such variations. Where your application involves such a variation, you may wish to provide an explanation. Copies of, or references to, established third party material, over and above any expert opinions otherwise provided, will assist us to understand why such variations occur, and how they can be commercially justified.

For more information, see non-commercial losses and product rulings.

    Last modified: 19 Jun 2014QC 17801