Edited version of private ruling

Authorisation Number: 1011651047947

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Ruling

Subject: Non-commercial losses - Commissioner's Discretion

Issue 1

Question 1

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 activities in the calculation of your taxable income for 2007-08 income year?

Answer

Yes.

Question 2

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your business activities in the calculation of your taxable income for 2008-09 income year?

Answer

Yes.

This ruling applies for the following years:

Income year ending 30 June 2008

Income year ending 30 June 2009

The scheme commences on:

1 July 2007

Relevant facts and circumstances

You purchased a property a few years ago with the intention of commencing an agricultural business.

It was established in our original private ruling that the lead-time expected in your agricultural industry. This is based on information you provided from a state government department.

In our private ruling we decided that you did not qualify for Commissioner's discretion in relation to lead time for the 2007-08 income year or because of special circumstances for the 2008-09 income year.

You objected to this decision.

You have provided new facts that materially alter those considered in your original ruling. Therefore we cannot consider your case as an objection. We will consider your application as a new private ruling request based on the new circumstances provided for your arrangement.

You provided written confirmation of the withdrawal of your objection and a request to consider your submission as a new private ruling application.

In the 2007-08 income year you were applying for Commissioner's discretion on the basis of lead time in your specific industry which you claim affected your ability to meet the assessable income test under section 35-30 of the ITAA 1997.

For the 2008-09 income year you applied for Commissioner's discretion on the basis of special circumstances (drought) that affected your ability to meet the assessable income test.

The previous owners of the property had established a similar business. They had received the required aquaculture and primary producer licenses.

These licenses were transferred to you as part of the property purchase.

The previous owners had ceased their business operations prior to your purchase; therefore, you did not purchase the property as a going concern. However, stock was included in the property purchase.

You stopped all production later.

You have stated that for the first 12 months, you spent three days a week at the farm and later, you began living on the farm.

You also employed others to work on the farm for periods of between three and six months.

Initially, you provided the following information:

· your business plan

· profit and loss statements for the 2007-08 and 2008-09 income years.

· independent evidence from a state government department on your industry which suggests the growout time for this type was supplied

· monthly rainfall figures for the region, taken from the Bureau of Meteorology website, for the period.

· additional information requested.

You have responded to a number of statements that appear in your original private ruling request.

In your objection you highlight the text from our reasons for decision from your original private ruling:

In response to this ruling, you state that you did not purchase an operational or viable business because the previous owner had not operated the business for a number of years, and there existed no significant commercial purpose, business plan, business intention and no purpose of profit.

You also state that when the property was purchased there was still approximately X of stock, but many of these were unsuitable for breeding or sale due to the previous owner not paying attention to their condition for a period of years. This initial stock was not commercially viable or up to commercial standards.

Thirdly, you state that in order to make the venture viable and sustainable, you had to use the existing suitable mature stock as brood stock and then build them up. You state that this would allow the business - after X months - to commence sales of new and fresh stock at a commercial standard, which you state is consistent with your business plan.

You state that this was not a decision you were able to make as the water was provided by adjacent dams via pumps. You state that the pumps were not switched on because there was insufficient water in the dams to pump. While you could have decided to run the pumps, the lack of water in the dams would have resulted in no change to the water level and it is likely that this would have also damaged the pumps.

You state that ultimately the lack of water in the dams was a direct result of lack of rainfall during the 2007-08 and 2008-09 income years.

You state that while this unfortunate event is true, it must be put into perspective. Some of the stock perished in this event.

You have provided the following new information with your request for a private ruling:

Rainfall charts for the surrounding stations near your property located.

Background

The area where your property is located is reported as being a locality within the XXXX Shire.

According to external online sources, the region where your property is located has significant history as viable agricultural land, with crops and cattle grazing being prominent agricultural industries in the area.