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Edited version of private ruling

Authorisation Number: 1011807436856

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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 tree growing activity in the calculation of your taxable income for the 2009-10 to 2027-28 financial years except the year where the discretion is not necessary because you make a tax profit?

Answer

Yes.

This ruling applies for the following period

Years ended 30 June 2010 to 2028

The scheme commenced on

1 July 2009

Relevant facts

You and a partner operate a tree plantation established in 2001.

The first thinning occurred in 2006 and the second is anticipated in the 2015-16 financial year and clear fall harvest in approximately the 2028-29 financial year.

You have provided projections which show that your activity will achieve a profit in the 2015-16 financial year and at clear fall in the 2028-29 financial year.

You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year and you expect your income to be more than $250,000 for the foreseeable future.

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

For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:

In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion.

The relevant discretion may be exercised for the income year in question where:

Having regard to your full circumstances, it is accepted that it is the nature of the business activity that has prevented you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry.

Consequently the Commissioner will exercise his discretion in the 2009-10 to 2027-28 financial years except for the 2015-16 financial year as your activity will achieve a profit.

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