Edited version of private ruling

Authorisation Number: 1011693351911

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: Commissioner's discretion

Question 1

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 farming business in the calculation of your taxable income for the relevant income years?

Answer

Yes.

Question 2

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

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on

1 July 2009

Relevant facts

Your farming business commenced some years ago.

Your farming business activities include:

· Cattle breeding.

· Finishing trade steers for sale

· Cereal cropping primarily for grazing with any excess baled for hay.

You employ a farm manager for the day to day operation of the farm.

You provide management direction for the business and contribute on weekends.

In recent years, your property experienced drought conditions which limited your activities, fire caused damage to fencing and irrigation infrastructure, some of your cattle became ill affecting their fertility rates; and you took advantage of the small business tax break which increased your depreciation expenses. However, you state that the loss did not arise solely because of these acquisitions.

All these factors prevented your business activities from producing a profit in the income years.

Your profit and loss projections for the relevant income years, you expect to produce a profit from your farming activities in the relevant income year.

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 your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.

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

In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000 in the income year and you expect this will be the case in the relevant income years as well.

In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, 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).

For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation.

You commenced your cattle farming business in the income year.

In your projected profit and loss statement, you have shown that your business activity will produce income greater than deductions attributable it in the relevant income year.

Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater that the expenses attributed to it.

Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your cattle farming business for the 2009-10, 2010-11and 2011-12 income years.

As your figures show that your farming activities will produce a profit in the future income year, the Commissioner cannot exercise the discretion for this year.

Disclaimer

You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you (or to someone acting on your behalf).

The Register of private binding rulings is a public record of private rulings issued by the Tax Office. The Register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.

The rulings in the Register have been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict Tax Office policy or decisions.