| Disclaimer This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au This edited version has been archived due to the length of time since original publication.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. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011477206175
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Non-commercial losses - Commissioner's discretion - lead time
This ruling applies for the following period
Year ending 30 June 2010
Relevant facts
You lodged an application for a private ruling and requested the Commissioner to exercise his discretion in paragraph 35-55(1)(c) of the income Tax Assessment Act 1997 (ITAA 1997) in relation to your primary production activity for the year ending 30 June 2010.
You operate your primary production activity in a partnership. Your activity was commenced in a past year. You have provided details of your activity.
Your income for non commercial loss purposes is more than $250,000.
Your primary production activity is operated in several stages and you have specified the number of years which is required before the final product can be produced.
You were a partner in partnership that produced similar products and that partnership was dissolved in the year you commenced this activity.
You have provided details of your past and projected income and expenses and other financial details. Your income and expenditure projections show that the activity will be profitable in a future year. You have provided information in relation to your projected income and the basis of calculation of your projections.
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 primary production activity in your calculation of taxable income for the year ending 30 June 2010?
Answer: Yes
Reasons for decision
Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in the calculation of taxable income. The 'income requirement' is set out in subsection 35-10(2E) of the ITAA 1997. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.
In order to exercise the discretion, the Commissioner must be satisfied, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period.
Based on the Information you have provided the Commissioner accepts that for the purposes of Division 35 of the ITAA 1997, the current activity is a separate activity.
In your case, you do not meet the income requirement in subsection 35-10(2E) of the ITAA 1997. However, your income projections show that your business activity will produce assessable income greater than the deductions attributable to it in a future year within the commercially viable period for the industry concerned. Based on other information you provided, the Commissioner is satisfied that your income projections are reasonable. You have also provided reasons for assuming your projected expenditure would be less compared to the previous years.
Your primary production activity is expected to make a profit within the commercially viable period for the industry. With the projected assessable income, your activity will also satisfy the assessable income test in section 35-30 of the ITAA 1997 for that year. Therefore, the Commissioner will exercise the discretion under paragraph 35-55(1)(c) of the ITAA 1997. This will mean that any loss from your primary production activity can be included in the calculation of your taxable income for the year ending 30 June 2010.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 35-10(2E)
Income Tax Assessment Act 1997 section 35-30
Income Tax Assessment Act 1997 section 35-55
Income Tax Assessment Act 1997 paragraph 35-55(1)(c)
ATO view documents
Taxation Ruling TR 2001/14
Taxation Ruling TR 2007/6