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Edited version of private ruling
Authorisation Number: 1011605752102
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Ruling
Subject: non-commercial losses Commissioner's discretion
Question
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 primary production business in your calculation of taxable income for the 2009-10 income year?
Answer: No.
This ruling applies for the following period:
1 July 2009 to 30 June 2010
The scheme commences on:
1 July 2009
Relevant facts
You do not pass the income requirement for the 2009-10 income year.
You commenced your primary production business some time ago.
The cost of real property used in the business is approximately $6 million and the marked value is in excess of $12 million. Assets used on a continuing basis in the business were purchased at a cost of over $260,000.
You employ a manager and other full time staff with subcontractors when required.
The average gross farming income over the last 5 years is approximately $600,000 and in the 2009-10 income year gross revenue will be greater than this average. You cannot estimate when your business will make a tax profit.
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. 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 your case, you do not satisfy the income requirement as your income for non commercial loss purposes is above $250,000.
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 (paragraph 35-55(1)(c) of the ITAA 1997).
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.
You have not been able to estimate when your business activity will produce income greater than deductions attributable to it. You consider that this is due to changes in consumer demands, government policies, technological advances, innovation and emerging environmental concerns. Also the variations in seasonal conditions, prices of feed, and changes in electricity, diesel and water prices have all influenced your business's profitability.
The websites that you have provided as evidence from independent sources do not provide evidence of an established commercially viable period for your industry. As your business has been in existence for many years and, with many of those years experiencing a loss result, it is considered that the commercially viable period for your farming activity has passed.
Where the business does not produce a profit within the commercially viable period, the Commissioner is not able to exercise the discretion.
Therefore the Commissioner will not exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 for the 2009-10 income year.
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