ATO Interpretative Decision

ATO ID 2003/629 (Withdrawn)

Income Tax

Non Commercial Losses: lead time discretion - plant disease affecting the 'commercially viable period'
FOI status: may be released

This ATOID is withdrawn as it is superseded by Taxation Ruling TR 2007/6.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Will the Commissioner take into consideration the effect of a plant disease which extends the established 'period that is commercially viable for the industry concerned' when considering whether to exercise the second arm of the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The Commissioner will take into consideration the effect of a plant disease which extends the established 'period that is commercially viable for the industry concerned' when considering whether to exercise the second arm of the discretion in paragraph 35-55(1)(b) of the ITAA 1997.

Facts

A taxpayer, who is an individual, commenced a plant growing business activity with healthy plants in the 2000-01 income year.

When requesting that the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the ITAA 1997, the taxpayer provided independent information which showed that a commercial plantation of this type is expected to be commercially viable and profitable within ten years of commencement. This time period had been established on the basis that the business activity commenced in the year of planting the seedlings and favourable growing conditions prevailed for the ten years.

During the year, the taxpayer's plants were infected with a disease which inhibited their development. This disease has been widespread within the industry for a number of years.

Independent industry information provided showed that plants that have been infected by this particular disease are retarded in their development by two years.

Reasons for Decision

Under paragraph 35-55(1)(b) of the ITAA 1997, the Commissioner may exercise a discretion to allow the loss to be offset against other income where it would be unreasonable to apply the loss deferral rule in subsection 35-10(2) of the ITAA 1997. The discretion in paragraph 35-55(1)(b) of the ITAA 1997 can only be exercised where:

(i): the business activity has started to be carried on; and
(ii): because of its nature it has not satisfied one of the tests set out in Division 35 of the ITAA 1997; and
(iii): there is an objective expectation based on independent evidence that the activity will either meet one of the tests, or produce a taxation profit, within a period that is commercially viable for the industry concerned.

When determining the 'period that is commercially viable for the industry concerned' as it relates to a particular business activity's industry, the Commissioner takes into consideration industry information where available.

In this case, the Commissioner was satisfied that the independent evidence demonstrated that the 'period that is commercially viable for the industry concerned' as it applies to this business activity is twelve years from commencement. This is on the basis that independent industry evidence states that, in general, the 'period that is commercially viable for the industry concerned' would be ten years from commencement of the activity, but due to the effects of the disease on the plants, the period is extended by two years to twelve years. Therefore, taking all the industry information into account, the 'period that is commercially viable for the industry concerned' as it relates to this particular business activity, is twelve years from commencement.

Date of decision: 25 June 2003

Year of income: Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   Division 35
   subsection 35-55(1)
   paragraph 35-55(1)(b)
   subsection 35-55(2)
   paragraph 35-55(2)(a)
   paragraph 35-55(2)(b)
   section 35-30
   section 35-35
   section 35-40
   section 35-45

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/14
Taxation Ruling TR 2001/14A - Addendum

Keywords
NCL commissioner's discretion lead time
Non commercial losses
NCL deferred losses
NCL commissioner's discretion criteria

Business Line: Business and Personal Taxes Centre of Expertise

Date of publication: 25 July 2003

ISSN: 1445-2782

history

	Date:	Version:
	25 June 2003	Original statement
You are here	16 November 2007	Archived

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