Edited version of private ruling

Authorisation Number: 1011653239198

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Ruling

Subject: Non-commercial losses Commissioner's discretion

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 primary production activity in your calculation of taxable income for the 2009-10 to 2013-14 income years?

No.

This ruling applies for the following periods:

1 July 2009 to 30 June 2014

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You satisfy subsection 35-10(2E) of the ITAA 1997. That is, your income for non-commercial loss purposes is less than $250,000.

You continue to be employed as a salary and wage earner. You and your spouse commenced a primary production activity during the 2008-09 income year on acreage. You purchased breeding livestock and have now increased your livestock holding. You have sold some livestock in 2010-11 and expect to sell more in the 2011-12 income year. The sale amount expected is not substantial.

Of the remaining breeding livestock neither is pregnant at this time.

You have constructed yards, fences, shelters, water and feeding infrastructure and continued pasture management. You are continuing to add more of this infrastructure.

You have no written business plan.

Reasons for decision

Summary

You have not demonstrated that there is an objective expectation that your business activity will pass one of the tests or produce a taxation profit by the 2011-12 income year. Therefore, the Commissioner will not exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997 for the income years 2009-10 to 2013-14 inclusive.

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 under subsection 35-10(2E) of the ITAA 1997 is satisfied if your income for non-commercial loss purposes is less than $250,000. In your case, you satisfy the income requirement.

Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997 will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55(1)(b) of the ITAA 1997 that it would be unreasonable to defer the loss.

It is accepted that it is in the nature of your activity that there will be a lead time before a profit can be expected or one of the tests passed.

You commenced your breeding activity during the 2008-09 income year and you purchased breeding livestock and have continued to increase your livestock holding. The information provided from your independent source states two and a half years from conception to sale is the accepted norm for this type of industry. Given the scale of businesses in your industry, it would be expected that the assessable income test would be met after two and a half years when a business makes its first sales.

In the 2010-11 income year you expect to sell some of the livestock for a maximum of approximately $X. You expect to sell more in the 2011-12 income year; however you do not expect to receive a substantial amount at sale.

The information you have provided does not demonstrate that there is an objective expectation that your business activity will pass one of the tests or produce a taxation profit by the 2011-12 income year which, in your case, is the income year the lead time for your industry expires.

Therefore, the Commissioner's discretion under paragraph 35-55(1)(b) will not be exercised for the income years 2009-10 to 2013-14 inclusive. You cannot claim a deduction for your losses against other income in these income years. Therefore, you must defer the loss until a future year where your activity meets one of the tests or there is a profit from your activity.