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Edited version of private ruling
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Ruling
Subject: Non commercial losses
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your primary production activity in your calculation of taxable income for the 2009-10 to 2012-13 financial years?
Answer: Yes
This ruling applies for the following periods
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 a primary production activity in 2009.
You have provided independent evidence that the lead time in your industry can be four to five years.
You expect to pass the assessable income test in the 2013-14 financial year.
You expect to make a tax profit in the 2016-17 financial year.
You do not meet any of the exceptions in Division 35 of the ITAA 1997.
You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1997 Paragraph 35-55(1)(b)
Income Tax Assessment Act 1997 Section 35-55
Income Tax Assessment Act 1997 Subsection 35-10(2E)
Reasons for decision
For the 2009-10 and later income years, Division 35 of the 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.
In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your 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 the business activity that there will be a period of time before it can be expected to pass one of the four tests
· there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a 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 one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry.
Consequently the Commissioner will exercise his discretion in the 2009-10 to 2012-13 financial years.