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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012487024780

Ruling

Subject: Non-commercial losses

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 business activity in your calculation of taxable income for the 2012-13 financial year?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

You and your spouse satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

You and your spouse carry on a business in partnership.

You and your spouse commenced business operations in the 2012-13 financial year.

The business is primarily concerned with raising animals.

Your business did not meet any of the four non-commercial loss tests in the 2012-13 financial year.

You and your spouse expect to pass the assessable income test in the 2013-14 financial year.

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 subsection 35-10(2E)

Income Tax Assessment Act 1997 paragraph 35-55(1)(b)

Reasons for decision

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

In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your 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 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 2012-13 financial year.

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