1011774091358 | Legal database

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Edited version of private ruling

Authorisation Number: 1011774091358

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Ruling

Subject: 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 activities in the calculation of your taxable income for the 2009-10 financial year?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You commenced your farming activities in the early 1980s.

Over the next 20 years, you purchased and sold additional properties and currently have approximately X,XXX hectares of land in use in your farming activities.

You spend approximately 20 hours on the farming business activities.

In the 20XX-XX financial year, your activities produced a loss of approximately $XXX,000.

You anticipate that the activities will produce a profit in the 20XX-XX financial year.

Your income for non-commercial loss purposes in the 20XX-XX financial year was above $250,000.

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 his 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 $XXX,XXX.

In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $XXX,XXX.

In order to exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997, 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.

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.

In your case, you commenced your farming activities in the 1980s. You have not provided any evidence from an independent source to establish the commercially viable period for your industry/business. However, you have stated that you expect your activities will produce income greater than the expenses attributed to it in 20XX-XX financial year or over 25 years after your activities commenced.

Taking into consideration the information you have provided, the Commissioner is not satisfied that the commercially viable period for your type of business activity is over 25 years.

The reason your business activity is currently producing a loss is peculiar to your situation, due, in part, to the continued expansion of your business, and is not inherent to the nature of the business. 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 financial year.

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