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Edited version of private ruling
Authorisation Number: 1011832202471
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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)(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 2010-11 to 2018-19 financial years?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Year ended 30 June 2019
The scheme commenced on
1 July 2010
Relevant facts
You are a partner in a partnership growing trees on three properties.
The timber is to be used for woodchips and sawn logs.
Professional forest services manage the properties.
You planted trees in the 1999, 2000 and 2001 years.
The trees on two of the properties will be harvested in approximately 2070. However, thinnings will take place every 10 to 15 years.
The second rotation of trees planted in 2010 on the third property will be harvested in 2020 or 2021.
You have provided projections which show that you will achieve a profit from the activity in the 2020 year.
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:
· you meet the income requirement and you pass one of the four tests
· the exceptions apply
· the Commissioner exercises his discretion.
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:
· it is in the nature of your business activity that there will be a period before a tax profit can be produced
· there is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry.
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 2010-11 to 2018-19 financial years.
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