Edited version of private ruling

Authorisation Number: 1011505362733

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Non-commercial losses - Commissioner's discretion

Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your forestry activity in your calculation of taxable income for the 2008-09 to the 2033-34 income years inclusive?

Yes.

This ruling applies for the following period

Year ended 30 June 2009 to the year ended 30 June 2034, inclusive.

The scheme commenced on

1 July 2003

Relevant facts

Your have developed a timber plantation on your property.

You have stated that you are carrying on this activity as a business and that it commenced in the 2003-04 income year.

The profit projections you have provided show you will pass one of the tests (the assessable income test) and will produce a taxation profit by the 2034-35 income year, 30 years after planting your trees.

The independent evidence you provided suggests that the commercially viable period for the forestry industry will be 30 years from the time of planting at which time clear felling is expected.

Your other assessable income from sources not related to this activity now exceeds $40,000.

Reasons for decision

Carrying on a business

The question of whether you are carrying on a business is a question of fact and degree. There are no hard and fast rules for determining whether your activities amount to the carrying on of a business. The facts of each case must be examined. In Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, Webb J said:

The test is both subjective and objective: it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and, as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained.

However, the courts have developed a series of indicators that you can apply to your circumstances to determine whether you are carrying on a business. Taxation Ruling TR 97/11 Income tax: Am I carrying on a business of primary production? summarises these indicators. No one indicator is decisive. The indicators must be considered in combination and as a whole.

Based on the information you supplied, your forestry activity can be said to have commenced as a business from the 2003-04 income year.

The Commissioner's discretion - lead time 

You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997.

Under paragraph 35-55(1)(b) of the ITAA 1997, the Commissioners discretion can be exercised where: 

· the business activity has started to be carried on but because of its nature it has not satisfied, or will not satisfy, one of the tests set out in sections 35-30, 35-35, 35-40 or 35-45 of the ITAA 1997, and

· there is an objective expectation that within a period that is commercially viable for the industry concerned the activity will meet one of the tests listed above or produce assessable income for an income year greater than the deductions attributable to it for that year.  

TR 2007/6 sets out the Commissioners interpretation of the exercise of the Commissioners discretion under paragraph 35-55(1)(b) of the ITAA 1997. The following has been extracted from paragraphs 70 to 104 of this Ruling.

The discretion is provided to ensure that certain individuals who carry on genuine commercial businesses are not disadvantaged due to particular circumstances which prevent them from satisfying tests one to four. 

This arm of the safeguard discretion will ensure that the loss deferral rule in section 35-10 of the ITAA 1997 does not adversely impact on taxpayers who have commenced to carry on activities which by their nature require a number of years to produce assessable income. The 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. Such activities have an inherent characteristic that cannot be overcome by conducting the business activity in a different way but only by changing the nature of the business. 

It is accepted that it is in the nature of your activity there will be a lead time before a profit can be expected or, one of the tests passed. For this reason, your activity has not previously satisfied one of the tests and will not satisfy one of the tests, except years in which thinning occurs, in the 2003-04 to the 2033-34 income years.

The information you have provided demonstrates that there is an objective expectation that your business activity will pass one of the tests (the assessable income test) and will produce a taxation profit by the 2034-35 income year, 30 years after planting your trees.

It is further accepted that meeting a test within 30 years of planting will be within a commercially viable period for your industry.

Therefore, the Commissioner's discretion has been granted for the 2008-09 to the 2033-34 income years.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).