1011613889269 | Legal database

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Edited version of private ruling

Authorisation Number: 1011613889269

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Ruling

Subject: Non-commercial losses - Commissioner's discretion - lead time

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

Yes.

This ruling applies for the following periods:

2009-10 income year

2010-11 income year

2011-12 income year

Relevant facts and circumstances

You lodged an application for a private ruling and requested the Commissioner to exercise his discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to your primary production activity for the 2009-10 to 2011-12 income years.

Your income for non commercial loss purposes is more than $250,000.

Your profit and loss statement indicates that your business activity generated revenue in a past income year. It is envisaged that the total revenue will increase in a future income year.

It is further expected that the business activity will first become profitable in a future income year.

You have provided independent evidence in respect to the lead time for the industry.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 section 35-30

Income Tax Assessment Act 1997 section 35-55

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

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

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 the calculation of taxable income. 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.

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 your income projection which has established that your business activity will produce assessable income greater than the deductions attributable to it in a future income year.

Information you have provided indicates that there is a lead time for your primary production activity.

Your income projections show that your primary production activity will be profitable in a future income year.

Your primary production activity is expected to make a profit in a future income year, within the commercially viable period for the industry. According to the projected assessable income, your activity will also satisfy the assessable income test in section 35-30 of the ITAA 1997 from a future income year onwards. Therefore, the Commissioner will exercise the discretion under paragraph 35-55(1)(c) of the ITAA 1997. This will mean that any loss from your primary production activity can be included in the calculation of your taxable income for the 2009-10 to 2011-12 income years.

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