Edited version of private ruling

Authorisation Number: 1011771403327

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Ruling

Subject: Non-commercial losses and the 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 livestock business in the calculation of your taxable income for the 2009-10 to 2011-12 financial years?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2009

Relevant facts

You inherited a property which you leased out until you commenced business operations in the 20XX-XX financial year.

The property is approximately XXX acres of which about half is being used at present.

Repairs have been completed on the boundary fence which will allow the whole property to be used.

You currently run XX livestock but this will expand further now that extra land is available.

You sell some livestock at one year old and some at 3 to 4 years old.

You satisfy the assessable income, the real property and the other assets tests in the 20XX-XX financial year. You expect to make a profit from the activity in the 20XX-XX financial year.

You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 20XX-XX financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 35-1.
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 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.

For the 20XX-XX and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:

· you meet the income requirement and you pass one of the four tests

· the exceptions apply

· the Commissioner exercises his discretion.

In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion.

The relevant discretion may be exercised for the income year in question where:

· It is in the nature of your business activity that there will be a period before a tax profit can be produced

· There is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry.

Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry.

Consequently the Commissioner will exercise his discretion in the 20XX-XX to 20XX-XX financial years.