Edited version of private ruling

Authorisation Number: 1011831658042

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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 livestock breeding enterprise in the calculation of your taxable income for the 2009-10 to 2011-12 income 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

The scheme commenced on

1 July 2009

Relevant facts

You commenced your livestock breeding activities in the 2004-05 financial year.

You have provided independent evidence stating that the commercially viable period for your industry is up to eight years.

Your projected income and expenditure figures show you expect to produce a tax profit in the 2012-13 financial year.

Your income for non-commercial loss purposes in the 2009-10 income year was above $250,000 and you expect this will be the case in the 2010-11 and 2011-12 financial years as well.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-1.

Income Tax Assessment Act 1997 Subsection 35-55(1)

Income Tax Assessment Act 1997 Paragraph 35-55(1)(c).

Income Tax Assessment Act 1997 Subsection 35-10(2E).

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).

In your case, you commenced your livestock breeding activities in the 2004-05 financial year. You have provided evidence from an independent source that suggests the commercially viable period for your industry/business can be up to eight years. In your projected income and expenditure statements, you anticipate that your business activity will produce a tax profit in the 2012-13 financial year, or after eight years.

Taking into consideration the information you have provided, the Commissioner is satisfied that your business activity will produce assessable income greater than the deductions attributable to it within a period that is commercially viable for this industry.

Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income for the 2009-10 to 2011-12 financial years.