Edited version of private ruling

Authorisation Number: 1011788091688

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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 enterprise in the calculation of your taxable income for the 2009-10 and 2010-11 financial years?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts

You commenced your animal breeding activities in the 20XX-XX financial year.

Your business activities derived income from the sale of progeny and service fees.

Your projected income and expenditure statements show that you anticipate that your business activities will begin to produce a tax profit from the 20XX-XX financial year.

Independent evidence provided from an industry governing body in Australia suggests that eight years is the time taken to reach full potential in this industry.

Your income for non commercial loss purposes for the 20XX-XX financial year was more than $XXX,000. You expect your income to be more than $XXX,000 in the 20XX-XX financial year as well.

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 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 $XXX,000.

In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $XXX,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).

In your case, you commenced your animal breeding activities in the 20XX-XX financial year. You have provided evidence from an independent source that suggests the commercially viable period for your industry/business can be up to eight years. In your projected income and expenditure statements, you anticipate that your business activity will produce a tax profit in the 20XX-XX financial year, or five years after your business began.

Taking into consideration the information you have provided, the Commissioner is satisfied that your business activity will produce assessable income greater than the deductions attributable to it 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 for the 20XX-XX and 20XX-XX financial years.