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Edited version of private ruling
Authorisation Number: 1011829163712
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Ruling
Subject: Non-commercial losses and the 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 fruit growing business 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 ended 30 June 2011
Note:
The issue of this ruling of itself does not constitute a decision of the Commissioner under subsection 35-55(1) of the ITAA 1997 that the loss deferral rule in subsection 35-10(2) of the ITAA 1997 does not apply to you for the financial years in question. That decision can only be made in issuing you your assessment, following lodgement of your income tax return for these financial years. You can lodge these returns on the basis that the Commissioner is bound to make this decision as set out in this ruling, where the facts set out in the ruling do not differ materially from the actual facts concerning your business activity.
The scheme commenced on
1 July 2009
Relevant facts
You are a partner in a partnership.
You planted fruit trees during the relevant financial year.
You projected that you would achieve a tax profit in the 2010-11 financial year. However, because of excessive rain which caused water to lay for weeks throughout the planted area, your crop was infected by fungus. The water that lay in the planted area also prevented spraying machinery from accessing the property.
You have provided projections which show that you will achieve a tax profit in the 2011-12 financial year.
You have stated that research conducted by the Primary Industries and Fisheries Department indicated that it will take up to three years before a harvestable crop can be expected and five to six years to achieve a profit.
You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000.
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
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 meet the income requirement and you pass one of the four tests
· the exceptions apply
· the Commissioner exercises his discretion.
In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) 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 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 for the 2009-10 and 2010-11 financial years.