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Edited version of private ruling
Authorisation Number: 1011750086771
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Ruling
Subject: non commercial losses
Question 1
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 mixed farming activity in your calculation of taxable income for the 2010-11 to 2012-13 financial years?
Answer
Yes.
Question 2
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the ITAA 1997 to allow you to include any losses from your mixed farming activity in your calculation of taxable income for the 2013-14 and 2014-15 financial years?
Answer
No.
This ruling applies for the following period
Financial year ended 30 June 2011
Financial year ended 30 June 2012
Financial year ended 30 June 2013
Financial year ended 30 June 2014
Financial year ended 30 June 2015
Relevant facts
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
· the application for private binding ruling (PBR),
· DPI reports,
· financial projection to the 2014-15 financial year.
You satisfy subsection 35-10(2E) of the ITAA 1997 as you earned less than $250,000 in the 2009-10 financial year.
Your first application for a private binding ruling was for a mixed farming activity. A ruling was issued exercising the Commissioner's discretion under paragraph 35-55(1)(b) of the ITAA 1997 for the 2004-05 financial year to the 2009-10 financial year. This discretion was based on the projection that the activity would pass the assessable income test in the 2010-11 financial year.
Due to a problem with your dams you abandoned the supplementary farming activity you had planned to undertake.
The primary farming activity has been successful to date with more than 200 trees planted and now six years old. Some of trees were recently flattened due to extreme weather conditions. These trees were lifted up and re-staked however some trees were lost. The surviving trees have been stressed because of this and will suffer a delay of two to three years in reaching maturity.
The DPI reports that you can expect commercial crops in another four to six years.
The extreme weather conditions also caused significant damage to fences, equipment and sheds, costing considerable money and time to rectify. This put your project significantly behind time, and money was spent repairing the property instead of improvements and further development.
Preparation for a new supplementary farming activity is underway with irrigation almost ready, areas levelled and weeds controlled. The next step is to apply organic mulch over the next two years and work in manure in preparation to plant the crop on a two year rotation basis.
You have predicted that your mixed farming activity will pass the assessable income test in the 2013-14 and later financial years.
Reasons for decision
Summary
The Commissioner will exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997 from the 2010-11 financial year to the 2012-13 financial year on the basis of your forecast that the mixed farming activity will pass a test in the 2013-14 financial year which is within a period that is commercially viable for the industry concerned.
Detailed reasoning
You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997.
The discretion in paragraph 35-55(1)(b) of the ITAA 1997 may be exercised where:
(i) the business activity has started to be carried on and for that or those income years
(ii) because of its nature it has not satisfied, or will not satisfy, one of the tests set out in Division 35 of the ITAA 1997, and
(iii) there is an expectation that the business activity of an individual taxpayer will either pass one of the tests or produce a taxation profit within a period that is commercially viable for the industry concerned.
You state that your mixed farming activity is carried on as a business and this ruling is made on the basis of accepting this claim.
It is accepted that, due to the nature of your activity, there will be a lead time before a profit can be expected or, one of the tests passed. The independent evidence you provided states that well tended plants can begin fruiting in the eighth year with yields increasing as the plants mature. A complete return on investment may be probable in the 15th year after planting. Your plants have suffered a delay of two or three years in development due to the effect of extreme weather conditions. However, you expect to pass the assessable income test in your mixed farming activity in the 2013-14 financial year mainly due to your secondary crop.
Therefore, the Commissioner's discretion has been granted for the 2010-11 to 2012-13 financial years. This means that any loss for your activity can be taken into account in calculating your taxable income for those years, provided that the arrangement carried out does not materially differ from that described in this ruling.
The Commissioner will not exercise the discretion for the 2013-14 and 2014-15 financial years as you forecast that the assessable income test will be passed in those financial years and the discretion is not required if a test is passed.