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Edited version of private ruling

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Ruling

Subject: NCL - Commissioner's discretion

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 business activity in your calculation of taxable income for the 2009-10 to 2011-12 income years?

Answer

Yes

This ruling applies for the following periods:

2009-10 income year

2010-11 income year

2011-12 income year

The scheme commences on:

1 July 2002

Relevant facts and circumstances

You are carrying on mixed farming activities on the same property. You stated that you had grouped product 1 and product 2 expenses in the projected income and expenses statement because there is common expenditure between the activities.

The following description of the scheme is based on information provided by you. The following documents form part of the scheme under consideration;

Income and expenditure projections for your business activity

You are carrying on a business of product 2 growing which commenced in 200X and product 1 growing in 200Y

Although you did not provide a formal business plan, you provided evidence that you had consulted industry experts regarding the viability of primary production activities that could be conducted on your property. You were advised that product 1 and product 2 growing on your property would provide commercial harvests and provide a profitable business opportunity in the future years.

You also provided that the product 2 yields had been adversely affected by insect infestation in 2008. The crops were not saleable and you had to throw them away as no pesticides could be used.

The product 1 projections are on track to match the industry figures supplied.

Your income for non commercial loss purposes for the income years 2009-10 to 20011-12 will be more than $250,000.

Relevant legislative provisions

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

Reasons for decision

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.

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 (paragraph 35-55(1)(c) of the ITAA 1997).

In your case, you do not meet the income requirement as your income for non commercial loss purposes is above $250,000. However, you have supplied evidence from an independent source which has established that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a period that is commercially viable for this industry.

Please note that we considered the fact that your product 2 growing activities were affected by the insect infestation in 2008. Accordingly the commercial viable period for this activity would be longer.

Therefore, the Commissioner will exercise the discretion available 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.

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