Edited version of private ruling

Authorisation Number: 1011796795173

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Ruling

Subject: Non-commercial losses - Commissioner's discretion

Question

Will the Commissioner exercise the discretion in section 35-55 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your tree growing activity in the calculation of your taxable income for the 2004-05 to 2012-13 financial years?

Answer

Yes.

This ruling applies for the following period

Years ended 30 June 2005 to 2013

The scheme commenced on

1 July 2004

Relevant facts

You and a partner entered into a management agreement for a number of projects in the plantation and harvest of trees. The projects commenced in the relevant years.

Generally, harvesting of the trees is expected to take place by the fifteenth year after the trees are planted, unless circumstances permit, at which time the harvest will be completed at an earlier date.

You expect to be in a position to harvest much earlier because there is a higher stocking of plants, a lower ratio of long term host plants and more frequent application of irrigation and fertiliser.

You have provided projections which show that your activity will achieve a profit in the 2013-14 financial year and each successive year until the 2020-21 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 and you expect your income to be more than $250,000 for the foreseeable future.

You do not satisfy any of the four tests listed in section 35-10 of the ITAA 1997.

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 - Section 35-55

Reasons for decision

Division 35 of the ITAA 1997 will apply to defer a non-commercial business loss from a business activity unless:

· You satisfy the income requirement for the 2009-10 and later financial years (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000)

· Your business activity satisfies one of the four tests listed in section 35-10 of the ITAA 1997

· the Commissioner has exercised the relevant discretion in section 35-55 of the ITAA 1997 the activity, or

· You come within the exception to Division 35 which may apply to a primary production or professional arts business.

In your situation, you do not satisfy any of the four tests; you do not satisfy the income requirement for the 2009-10 and later financial years, 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 2004-05 to 2012-13 financial years.