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Edited version of private ruling
Authorisation Number: 1011772128623
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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 fattening activity in your calculation of taxable income for the 2009-10 and 2010-12 financial years?
Answer
Yes.
This ruling applies for the following periods
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 and a partner purchased a livestock fattening property in 200X.
You have spent the first X years improving the property and doing preliminary work.
You also allowed another person to agist their cattle on your property while you were doing the preliminary work. When they sold the livestock, you received half the sale price as payment for agistment fees.
You purchased approximately XXX livestock in early 20XX and you consider that this is when the business commenced.
You have provided projections showing that you will achieve a profit from the activity in the 2012-13 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 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 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 20XX with the purchase of approximately XXX livestock.
You have provided projections showing that you will achieve a profit in the 2012-13 financial year. It is accepted that three years is within the commercially viable period for the livestock activity.
You have also provided information from industry representatives which provide information about your activity.
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.