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Edited version of private ruling
Authorisation Number: 1011774664177
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Ruling
Subject: Commissioner's discretion
Questions:
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 plantation enterprise in the calculation of your taxable income for the 2009-10 and 2010-11 financial years?
Answer: Yes.
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 plantation enterprise in the calculation of your taxable income for the 2011-12 and 2012-13 financial years?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
The scheme commenced on
1 July 2009
Relevant facts
You commenced your plantation activities in 19XX.
The property was planted in 19XX and is professionally managed.
There is no dwelling on the property and it has never been used for any private purpose.
Harvesting will commence in the 2011-12 financial year.
The harvest is expected to be carried out over three years.
Based on current expenses (including interest payments), you expect to make a net profit from the 2011-12 financial year.
Expenses are expected to remain reasonably stable in future years.
The independent evidence you provided indicates that the plantation is expected to be harvested within 20 years.
Your adjusted taxable income for non commercial loss purposes in the 2009-10 financial year was more than $250,000 and you expect your income to be more than $250,000 in the 2010-11 financial year also.
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
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 his 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 the 2009-10 income year and you expect this will be the case in the 2010-11 financial year as well.
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.
Your plantation was established in 19XX and harvesting is due to commence in the 2011-12 financial year. You anticipate that the harvest will produce income greater than deductions attributable to it from the 2011-12 financial year, or approximately 19 years after planting. You have provided evidence from an independent source that indicate that the commercially viable period for this plantation is 20 years.
Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater that the expenses attributed to it.
Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your plantation for the 2009-10 and 2010-11 financial years.
Under Division 35 of the ITAA 1997, the Commissioner's discretion can only be exercised where a taxpayer is seeking to claim losses from that particular business activity against their other income. As your plantation activities are expected to produce a profit in the 2011-12 and 2012-13 financial years, the Commissioner's discretion is not available.