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Edited version of private ruling
Authorisation Number: 1011750077652
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Ruling
Subject: 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 any losses from your fruit growing enterprise in your calculation of taxable income for the 2008-09 to 2010-11 income years?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commenced on
1 July 2007
Relevant facts
You purchased an established farm in the 2006-07 year of income.
The existing varieties of fruit were not ones which were in demand.
You pulled out the existing trees on some acres of the property and replaced the equipment and irrigation system.
You planted trees in the 2007-08 year of income.
You will harvest your first fruit in the 2010-11 year of income and expect to earn over $20,000 in the 2011-12 year of income.
Your assessable income from other sources that do not relate to the business activity is more than $40,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 35-10(2)
Income Tax Assessment Act 1997 Subsection 35-10(4)
Income Tax Assessment Act 1997 Subsection 35-55(1)(b)
Reasons for decision
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. It is accepted that meeting a test within 5 years of planting will be within a commercially viable period for your industry.
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 2011-12 income year.
Therefore, the Commissioner's discretion under paragraph 35-55(1)(b) has been granted for the 2008-09 to 2010-11 year of income.