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Edited version of private ruling
Authorisation Number: 1011519476953
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Ruling
Subject: Interest and insurance - non commercial losses
Question
Are you entitled to deductions for the cost of interest and insurance incurred on your existing agriculture investment business when your income for non commercial loss purposes for the year ended 30 June 2010 is more than $250,000?
Answer
Yes.
This ruling applies for the following period:
1 July 2009 to 30 June 2010
The scheme commences on:
1 July 2009
Relevant facts and circumstances
You invested in an agricultural project.
Your investment is based on the arrangement described in the relevant product ruling.
You have incurred interest and insurance expenses with regards to the project.
You will incur a loss for the year ended 30 June 2010.
Your income for non commercial loss purposes for the year ended 30 June 2010 was more than $250,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1,
Income Tax Assessment Act 1997 Section 35-1,
Income Tax Assessment Act 1997 Subsection 35-10(2E) and
Income Tax Assessment Act 1997 Subsection 35-55(1)(c).
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision of the taxation legislation excludes it.
Interest and insurance expense associated with a business activity are deductible under section 8-1 of the ITAA 1997.
Where the business activity results in a loss the non commercial losses legislation must be considered before the deduction can be allowed in the year of income.
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. 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 if the losses were due to the business activity having a 'lead time'.
In your case, you invested in an agricultural project and have incurred a loss in the year ended 30 June 2010.
The relevant product ruling sets out the Commissioner's view on the way in which the non commercial loss legislation applies to investors (referred to as growers) who entered into the arrangement described before 30 June 2004. Under the ruling, a grower accepted into the Project before this time is considered to be carrying on a business.
You advised you entered into the arrangement described by the product ruling prior to 30 June 2004 and thus are considered to be carrying on a business.
You do not meet the income requirement as your income for non commercial loss purposes is above $250,000. However, in the product ruling the Commissioner has exercised his discretion to allow growers to claim a deduction for their losses until the year ended 30 June 2014. This discretion remains in force despite the introduction of the income requirement provision of the non commercial loss legislation on 14 December 2009 (paragraph 35-55(1)(c) of the ITAA 1997).
Thus you are entitled to claim a deduction for the interest and insurance expenses associated with your agricultural business investment.
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