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Edited version of private ruling
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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 farming business in the calculation of your taxable income for the 2009-10, 2010-11 and 2011-12 income years?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
The scheme commenced on
1 July 2009
Relevant facts
You are carrying on a farming business which commenced in the income year.
You have invested in equipment and land improvements with a view to being commercially profitable within two to three years.
Your revised projected income and expenditure statement shows that your business activity should produce a profit in the relevant income year.
Your income for non commercial loss purposes for the income year was more than $250,000 you expect your income to be more than $250,000 in the future income years.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 35-1.
Income Tax Assessment Act 1997 - Subsection 35-10(2E).
Income Tax Assessment Act 1997 - Subsection 35-55(1)
Income Tax Assessment Act 1997 - Paragraph 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. 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 the income year and you expect this will be the case in the future income years as well.
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 farming business in the previous income year.
In your revised projected income and expenditure statement you believe that your business activity will not produce income greater than deductions attributable to it until after the future income year.
You have not provided any evidence from an independent source to establish the commercially viable period for your industry/business.
Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater that the expenses attributed to it.
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 in relation to your farming business for the income years.
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