Edited version of private ruling

Authorisation Number: 1011768445355

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Ruling

Subject: 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 animal breeding business in the calculation of your taxable income for the 2009-10 financial year?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You commenced your animal breeding business in 1980s on a small property.

Several years later, when the original property became too small, the breeding was transferred to a larger property.

This property was further increased, with the purchase of an adjoining property, but with a downturn in the market, and in the face of unsustainable financial losses, this property was sold in a few years later.

You reduced the breeding enterprise back at the original property.

In the last ten years, your activities have only produced income greater than the expenses attributable to it in one financial year.

Your income for non-commercial loss purposes in the 2009-10 financial year was above $250,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-1.

Income Tax Assessment Act 1997 Subsection 35-55(1)

Income Tax Assessment Act 1997 Paragraph 35-55(1)(c).

Income Tax Assessment Act 1997 Subsection 35-10(2E).

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 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. For example, the discretion will not be available where the failure to make a profit is for reasons other than the nature of the business such as, a consequence of starting out on a small scale, the hours worked or the need to build a client base.

In your case, you commenced your animal breeding activities in the 1980s. In the past ten years, your business activities have only produced income greater than the deductions attributable to it in one financial year. You have not provided any evidence from an independent source to establish the commercially viable period for your industry/business. You anticipate that your business activity will be profitable again in the 2011-12 financial year, or 2X years after your business began.

Taking into consideration the information you have provided, the Commissioner is not satisfied that the commercially viable period for your type of business is 2X years.

Overall, the reason your breeding activities have continued to make a loss is peculiar to your situation and is not inherent to the nature of the business.

Where the business does not produce a profit within the commercially viable period, the Commissioner is not able to exercise the discretion.

Therefore, the Commissioner will not exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 for the 2009-10 financial year.