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Edited version of private ruling
Authorisation Number: 1011810144832
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Ruling
Subject: Non-commercial losses and the Commissioner's discretion
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your nut tree activity in the calculation of your taxable income for the 2011-12 and 2012-13 financial years?
Answer: Yes.
This ruling applies for the following periods
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on
1 July 2011
Relevant facts
You and your spouse are partners in a partnership growing nut trees.
The business commenced in the 2006-07 financial year.
You planted 1,200 grafted trees in the first year.
You attempted to graft an additional 1,200 in the second year. However, you only achieved a strike rate of 5%. In the 3rd year, you grafted the ones that did not take and had an 85% strike rate.
Trees start to bear in 5 years at 20% production increasing to 100% at eight years.
Because of the floods and storm in January and February 2011, 380 trees of the original planting were destroyed. Of the balance it is still unclear what long term damage was done as a lot were blown over and the tap root broken. It will become clearer of the loss when these start to regrow.
You are unable to replace the destroyed trees at the moment because replacements are not available.
You have provided evidence that it requires eight years for the trees to reach full production. You expect that your assessable income from the activity will be more than $20,000 in the 2013-14 financial year.
You expect that your income for non-commercial loss purposes will be less than $250,000 in the 2012 and 2013 financial years.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 35-55(1)(b)
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:
· you satisfy the income requirement and you pass one of the four tests
· the exceptions apply
· the Commissioner exercises his discretion.
The relevant discretion may be exercised for the income year in question where:
· it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests
· there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry.
Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry.
Consequently the Commissioner will exercise his discretion in the 2011-12 and 2012-13 financial years.
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