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Ruling
Subject: Non-commercial losses- 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 mixed farming business in your calculation of taxable income for the 2011-12 to 2013-14 financial years?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2011
Relevant facts and circumstances
You have a property where you commenced a mixed farming business in 20XX.
You expect to become sustainable and create a profit in the first two to three years. Your web site when completed will boost your sales.
You have researched for information on one part of your mixed farming activity in Australia and have not found an independent source to advise that, within a period that is commercially viable for the industry that the activity will meet one of the tests or will make a profit. Your research leads you to believe that an independent source is unavailable because the product is imported. On another part of the mixed farming activity you have provided information that three years will produce a harvest.
One part of your mixed farming enterprise will produce one crop per year and in the 2013 year you expect an income of $16,800. Another part will produce a harvest in the third year of planting but full production may be several more years beyond these three years. You expect it will be profitable in the third year.
Your income for non-commercial loss purposes is less than $250,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 35-10(1)
Income Tax Assessment Act 1997 subsection 35-10(2)
Income Tax Assessment Act 1997 paragraph 35-55(1)(b)
Income Tax Assessment Act 1997 subsection 35-10(2E)
Reasons for decision
You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997.
The discretion in paragraph 35-55(1)(b) of the ITAA 1997 may be exercised where:
(i) the business activity has started to be carried on and for that or those income years
(ii) because of its nature it has not satisfied, or will not satisfy, one of the tests set out in Division 35 of the ITAA 1997, and
(iii) there is an expectation that the business activity of an individual taxpayer will either pass one of the tests or produce a taxation profit within a period that is commercially viable for the industry concerned.
It is accepted that, due to the nature of your activity, there will be a lead time before a profit can be expected or, one of the tests passed. The independent evidence you provided states one part of the activity can be harvested in the third year with yields increasing as the plants mature. You expect to make a profit from this part of the activity in the third year of planting and an increase in the yield in the other part in the 2014-15 financial year. You expect to pass the assessable income test in your mixed farming activity in the 2014-15 financial year.
The Commissioner's discretion has been granted for the 2011-12 to 2013-14 financial years. This means that any loss for your activity can be taken into account in calculating your taxable income for those years, provided that the arrangement carried out does not materially differ from that described in this ruling.
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