Edited version of private ruling

Authorisation Number: 1011615250328

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Ruling

Subject: Non-commercial losses - Commissioner's discretion

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 cattle farming enterprise in your calculation of taxable income for the 2009-10 to 2012-13 income years?

Yes.

This ruling applies for the following period

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on

1 July 2009

Relevant facts

You are carrying on a business of cattle farming.

Your aim is to purchase herd cattle and a bull and to produce fast growing quality calves.

In the interim, you plan to pursue alternative income streams from cattle agistment, feedlot charges and the sale of surplus feed.

Your income for non commercial loss purposes will be more than $250,000 in the income years covered by this ruling.

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.

You commenced your cattle farming business in mid 2010. You have not provided any evidence from an independent source to establish the commercially viable period for your industry/business. However, it is accepted that the commercially viable period for your industry begins at the start of the activity and includes the time taken to raise females to a breeding age, allowing for the gestation period of those animals to finish, and finishes when the progeny have reached saleable age. The commercially viable period for cattle farming is two to three years. Based on this, your business activities should be commercially viable by mid 2013, or the 2012-13 income year.

Therefore the Commissioner will 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 to 2012-13 income years.

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