Edited version of private ruling

Authorisation Number: 1011490423723

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Ruling

Subject: Non-commercial losses Commissioner's discretion - lead time

Question 1

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 beef cattle raising activity in your calculation of assessable income for the 2010 and 2011 income years?

Yes.

Your Private Ruling application

Independent evidence sourced from a government department.

Your business plan

Income projections for your business activity

You operate 2 farms with the intention of breeding and fattening beef cattle.

You use the first property for fattening beef cattle. You use the second property, for breeding the cattle.

Your income for non-commercial loss purposes (that is the 'income requirement') for the years was more than $250,000 and the relevant income for the other year will also exceed the limit.

Your business activity will become commercially viable in a future year. Your projected assessable income and tax profit for that year would be $X and $Y respectively.

The independent evidence you provided suggests that the commercially viable period for your industry is six months to two years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 35-10

Income Tax Assessment Act 1997 subsection 35-10(2E)

Income Tax Assessment Act 1997 section 35-55

Income Tax Assessment Act 1997 paragraph 35-55(1)(c)

ATO view documents

Taxation Ruling TR 2001/14

Taxation Ruling TR 2007/6

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 the calculation of taxable income. The 'income requirement' is set out in subsection 35-10(2E) of the ITAA 1997. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.

In order to exercise the discretion, the Commissioner must be satisfied, 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.

In your case, you do not meet the income requirement as your income for non-commercial loss purposes is above $250,000 for the years. However, you have supplied your income projection which has established that your business activity will produce assessable income greater than the deductions attributable to it for the future year. Accordingly your beef cattle activity will produce a tax profit within the period that is commercially viable for the industry.

Therefore, the Commissioner will exercise the discretion under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income for the relevant years.

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