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Edited version of private ruling
Authorisation Number: 1011749101896
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Ruling
Subject: Non-commercial losses - Commissioner's discretion
Question:
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 plantation timber business in your calculation of taxable income for the 2007-08 to 2030-31 financial years?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Year ended 30 June 2019
Year ended 30 June 2020
Year ended 30 June 2021
Year ended 30 June 2022
Year ended 30 June 2023
Year ended 30 June 2024
Year ended 30 June 2025
Year ended 30 June 2026
Year ended 30 June 2027
Year ended 30 June 2028
Year ended 30 June 2029
Year ended 30 June 2030
Year ended 30 June 2031
The scheme commenced on
1 July 2007
Relevant legislative provisions
Income Tax Assessment Act 1997 paragraph 35-55(1)(b)
Relevant facts
You commenced carrying on a primary production business of timber production in the financial year.
A local authority identified your site as perfect for agroforestry and assisted with both advice and funding.
An agreement was reached whereby you committed to establish a forestry plantation and it was agreed that you would plant, tend to and manage the plantation and retain ownership and control of the land and the trees themselves.
You planted the trees in two lots given the availability of tree seedlings and funding.
Form pruning began in early in the recent year to encourage straight growth with the first trees planted already achieving some 3 metres in height.
You are growing the trees for the purpose of producing furniture grade timber which attracts a premium price in the market with the thinning and by-products to be sold as firewood.
You have provided independent advice that your trees are able to be felled for sawn timber at between 25-30 years growth.
You expect to meet the assessable income test and make a profit from your activity in the 2031-32 financial year.
Your adjusted taxable income for non-commercial loss purposes for the 2009-10 financial years was less than $250,000.
You expect that your adjusted taxable income for non-commercial loss purposes for the 2010-11 to 2030-31 financial years will be less than $250,000.
Your timber growing activity does not or 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 2007-08 to 2031-32 financial years.
The following documents form part of the scheme under consideration;
· Your Private Ruling application
· Independent evidence and comments on your plans from industry specialists
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 a discretion to allow the inclusion of the losses.
You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable 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)(b) of the ITAA 1997 that it would be unreasonable to defer the loss.
We accept that the reason your activities are expected to produce losses in the 2007-08 to 2031-32 financial years is because it is inherent to the nature of your activity that there will be a lead time 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 2031-32 financial year, 25 years after planting your timber trees.
Therefore, the Commissioner's discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been granted for the 2007-08 to 2030-31 financial years.