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Edited version of private ruling
Authorisation Number: 1011703805926
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Ruling
Subject: non-commercial losses - Commissioner's discretion
Question:
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 plantation enterprise in the calculation of your taxable income for the 2009-10 to 2023-24 income years?
Answer: Yes.
This ruling applies for the following periods
Year ended 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
Year ending 30 June 2023
Year ending 30 June 2024
The scheme commenced on
1 July 2009
Relevant facts
You commenced your plantation enterprise in the 2009-10 income year.
The independent evidence you provided indicates that the plantation will reach a harvestable size within 15 to 20 years.
In your projected profit and loss statement, you anticipate your plantation will be harvested in 17 years and will produce a net profit of $160,000 in that year.
Your adjusted taxable income for non commercial loss purposes for the income year 2009-10 was more than $250,000. You expect your income to be more than $250,000 in the 2010-11 to 2023-24 income years.
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)
Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c)
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 2009-10 income year and you expect this will be the case in the 2010-11 to 2023-24 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 established a plantation on your property in the 2009-10 income year.
In your projected profit and loss statement, you have shown that your business activity will not produce income greater than deductions attributable to it for 17 years or until after the 2023-24 income year.
You have provided evidence from independent sources that indicate that the commercially viable period for plantations is between 15 and 20 years. 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 plantation enterprise for the 2009-10 to 2023-24 income years.