Edited version of private ruling

Authorisation Number: 1011782841097

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Ruling

Subject: non-commercial losses

Question

Is the income requirement contained in section 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) satisfied?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are partners in a successful primary production partnership with a turnover most years of over one million dollars.

You meet all four tests for non-commercial loss purposes.

In previous financial years in which the primary production activity was profitable, you deposited funds from the activity into farm management deposits (FMDs).

You withdrew FMDs of $X00,000 each in the 2010 financial year in order to provide working capital for the farming operations.

If your FMD withdrawal was included in your adjusted taxable income, it would cause your adjusted taxable income to exceed $250,000.

Relevant legislative provisions

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

Reasons for decision

Summary

The FMD is properly attributable to your partnership business activity therefore the repayment will be excluded from your adjusted taxable income and you will satisfy the income requirement.

Detailed reasoning

For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) will apply to defer a non-commercial loss from a business activity unless:

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

· the exceptions apply

· the Commissioner exercises his discretion.

The income requirement prevents you from accessing the four tests where your adjusted taxable income exceeds $250,000 (that is, your taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses but excluding your business losses).

However not all of your assessable income is included in calculating your adjusted taxable income. Any assessable income attributed to the business activity incurring the loss is not included in your adjusted taxable income. This is because it forms part of the business losses, which are disregarded (the business losses are calculated by deducting the expenses attributed to the business activity from the assessable income 'from' that business activity).

As your FMD is properly attributable to your partnership business activity (the income is from the partnership activity), the repayment will be excluded from your adjusted taxable income and you will satisfy the income requirement.

As you satisfy the income requirement and meet at least one of the four non-commercial loss tests, you are not required to defer your share of any loss from the partnership. Therefore, the special circumstances discretion does not need to be considered