Edited version of private ruling

Authorisation Number: 1011502463422

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Subject: Primary production

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the taxpayer to include any losses from the taxpayer's primary production activity in the taxpayer's calculation of taxable income for past and future income years?

Answer

No.

Years of income to which this ruling applies:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme that is the subject of the ruling:

The taxpayer commenced carrying on a primary production business in a past income year.

The income for non commercial loss purposes for the income years will be more than $250,000.

The business activity will become commercially viable in a future income year.

Independent evidence in respect to the commercially viable period for the industry was not provided.

According to past tax returns the primary production business produced assessable income in a past income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-1,

Income Tax Assessment Act 1997 Subsection 35-55(1),

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

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

Explanation: (This does not form part of the notice of private ruling)

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 your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.

You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000.

In the taxpayer's case, the income requirement is not satisfied as the income for non commercial loss purposes is above $250,000.

Paragraph 35-55(1)(c) of the ITAA 1997 states that in order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, 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. However this paragraph is intended to cover a business activity that has a lead time between the commencement of the activity and the production of any assessable income.

For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. For example, the discretion will not be available where the failure to make a profit is for reasons other than the nature of the business such as, a consequence of starting out on a small scale, the hours worked or the need to build a client base.

The primary production activity has produced assessable income in a past income year hence the lead time for the business activity has already expired.

Therefore the Commissioner will not exercise the discretion available in accordance with paragraph 35-55(1)(c) of the ITAA 1997.

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