Edited version of private ruling

Authorisation Number: 1011700924697

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Ruling

Subject: Non-commercial losses - Commissioner's discretion - Lead time

Questions:

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 losses from your primary production producing business in your calculation of taxable income for the 2009-10 income year.

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

You currently work full-time in the as a professional in the agricultural industry. .

Your income for non-commercial loss purposes for the 2009-10 income year was less than $250,000.

You commenced carrying on a primary production business in the 2009-10 income year, when you planted a commercial crop.

You incurred crop costs in the 2009-10 income year, for a crop which was harvested in the 2010-11 income year.

You expect to make a profit from your activity in the 2010-11 income year.

Your business activity will not satisfy any of the tests set out in sections 35-30 (assessable income test), 35-35 (profits test), 35-40 (real property test) or 35-45 (other assets test) of the ITAA 1997 for 2009-10 income year.

The following documents form part of the scheme under consideration;

· Your Private Ruling application

· Income and expenditure projections for your business activity

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 35-1.

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

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

Reasons for decision

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 as your income for non-commercial loss purposes is less than $250,000.

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)(a) or 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 of one year before a profit can be expected or one of the tests passed.

The information you have provided demonstrates that there is an objective expectation that your business activity will pass one of the tests (the assessable income test) or will produce a taxation profit by the 2010-11 income year, one year after planting your crop.

We consider that the reason your activities produced a loss in the 2009-10 income year is because there is a lead time which is inherent to the nature of your business activities. Therefore, the Commissioner's discretion under paragraph 35-55(1)(b) has been granted for that year.