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Edited version of private ruling
Authorisation Number: 1011767171190
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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 primary production activity in your calculation of taxable income for the 2009-10 and 2014-15 income years?
Answer
Yes, unless the Commissioner's discretion is not necessary because your activity makes a tax profit in the income year.
This ruling applies for the following period
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
The scheme commenced on
1 July 2009
Relevant facts
You own a farm property.
You have submitted the number of crops planted and will be planted in the future.
Your business activity commenced in 20XX.
You have provided independent information showing that the crops are at full production in X years.
You have provided projections for the sale of the crop at $X per portion which shows that your income will be more than your expenses in the 20XX financial year and at $X per portion, your income will be more than your expenses in the 20XX financial year.
Your business met the 'real property' and the 'other assets' tests from 20XX.
You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 35-10
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
Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to losses from certain business activities for the year ended 30 June 2001 and subsequent years. The provisions only apply to individuals who conduct a business activity as either a sole trader or a partner in a partnership and made a loss from that business activity.
Section 35-10 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.
You satisfy the income requirements under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is above $250,000.
If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses if your business activity is of a type that requires a lead time before any assessable income is produced, for example, a forestry activity.
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.
You commenced the business in 2007 with initial planting in 2008.
You have provided projections for the sale of your crop at $X per portion which shows that you will achieve a profit in the 2013-14 financial year and at $X per portion you will achieve a profit in the 2011-12 financial year.
It is accepted that X years is a commercially viable period for a commercial primary production activity. The X years comprise X years lead time as per the relevant taxation ruling.
You do not meet the income requirement as your income for non-commercial purposes is above $250,000. However, you have shown that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a period that is commercially viable for this industry.
Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income.
Please note that the discretion will not apply in any year that you make a profit from this activity.