Edited version of private ruling

Authorisation Number: 1011807491184

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Ruling

Subject: Commissioner's discretion

Questions:

1. 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 your calculation of taxable income for the 2009-10 to 2011-12 financial years?

Answer: Yes.

2. Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997 to allow you to include any losses from your plantation enterprise in your calculation of taxable income for the 2009-10 to 2016-17 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

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commenced on

1 July 2009

Relevant facts

In 2007, you commenced livestock farming activities

Your plan is to build your stock to a point where you are selling X head a year.

You believe you will reach full production and produce a tax profit in the 20XX-XX financial year.

In 2007, you also commenced your plantation activities.

Your projected income and expenses statement shows you do not expect to make a profit from the sale of the produce until the 20XX-XX financial year.

Your income for non-commercial loss purposes in the 2009-10 financial year was above $250,000 and you expect this will be the case for the 2010-11 to 2016-17 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 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.

Where there are separate business activities, Division 35 of the ITAA 1997 needs to be applied to each business activity separately.

The question of whether there are one or multiple business activities is a question of fact and overall impression. There are a number of factors which can be considered to help determine whether there are one or multiple business activities. These include the location of each of activity, the assets used in each activity, the goods and services produced by each activity, the interdependency of the activities and any commercial links between the activities.

In your case, your farming and plantation activities are conducted on the same property. The assets used in each activity would, for the most part, be different; however, there would be some equipment that could be utilised in both activities. The goods produced in each activity are vastly different and service vastly different markets. The activities are not interdependent and any commercial links would be incidental.

Based on the facts and the overall impression, your farming and your plantation activities are considered to be two separate business activities and Division 35 of the ITAA 1997 will be applied to each business activity separately.

Livestock farming activities

You commenced your livestock farming business in 2007. Your plan is to build your stock to a point where you are selling X head a year. You believe you will reach full production and produce a tax profit in the 20XX-XX financial year or X years after you commenced.

You have not provided any evidence from an independent source to establish the commercially viable period for your industry/business. However, 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 than 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 livestock farming business for the 2009-10 to 2011-12 financial years.

Plantation

Your plantation was planted in 2007 and is not expected to produce a tax profit until the 20XX-XX financial year or X years after it commenced.

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 than 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 business for the 2009-10 to 2016-17 financial years.