Edited version of private ruling

Authorisation Number: 1011802971172

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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 farming enterprise in the calculation of your taxable income for the 2009-10 to 2012-13 financial years?

Answer: Yes.

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 farming enterprise in 2008 on a property of approximately 500 acres with no residential dwelling.

To date, you have spent approximately $200,000 on infrastructure for this property, including fencing paddocks and laneways and installing troughs and feed silos.

Your aim is to produce quality stud animals for sale as well as a crossbred mix for meat.

You have recently purchased an award winning stud animal to enhance the quality of the animals produced by the stud.

You expect the business to produce a tax profit within five years, or in the 2013-14 financial year.

You have provided independent evidence from industry experts that state that your activities are not expected to produce a profit for a period of five years.

Projected income and expenditure statement has been provided.

Your income for non-commercial loss purposes in the 2009-10 income year was above $250,000 and you expect it to be above $250,000 in the 2010-11 to 2012-13 financial years 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 $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 to 2012-13 financial years 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.

In your projected profit and loss statement, you have shown that your farming activities are expected to produce income greater than deductions attributable to it in the 2013-14 financial year or five years after it commenced.

You have not supplied evidence from an independent source to establish the commercially viable period for this industry generally, but you have provided independent evidence that your business activity is expected to become profitable in five years.

Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, your farming activities 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 farming activities for the 2009-10 to 2012-13 financial years.