Edited version of private ruling

Authorisation Number: 1011521676174

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Ruling

Subject: Non commercial losses - horse breeding

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 animal breeding business activity in your calculation of taxable income for the 2009-10 and 2010-11 income years?

Yes.

This ruling applies for the following periods:

1 July 2009 to 30 June 2010

1 July 2010 to 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Your activity is animal breeding.

You state that you are carrying on this activity as a business and it commenced during the 2006-07 income year.

The profit projections you have provided show you will pass the assessable income test by the year ended 30 June 2012, your fifth year of operation.

You have provided information from your tax agent that the commercially viable period for participants in your animal breeding industry will be between five and ten years. Approximately 75% of your tax agent's client base are involved in your animal industry.

Your income for non commercial loss purposes is above $250,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-1

Income Tax Assessment Act 1997 Subsection 35-55(1)

Income Tax Assessment Act 1997 Paragraph 35-55(1)(c)

Income Tax Assessment Act 1997 Subsection 35-10(2E).

Reasons for decision

Summary

The Commissioner will exercise the discretion to allow you to include any losses from your animal breeding activity in your calculation of taxable income for the 2009-10 and 2010-11 income years.

Detailed reasoning

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 your taxable income calculation. 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 (paragraph 35-55(1)(c) of the ITAA 1997).

In your case, you do not meet the income requirement as your income for non commercial loss purposes is above $250,000. However, you have supplied evidence from your tax agent which has established that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a period that is commercially viable for this industry. Given your tax agent's specialisation in your animal industry, the Commissioner has accepted their statement as if it were from an independent source.

Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income.