| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1011954769293
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
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 forestry activities in the calculation of your taxable income for the 2011-12 to 2035-36 financial years?
Answer: Yes.
This ruling applies for the following periods
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
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
Year ending 30 June 2023
Year ending 30 June 2024
Year ending 30 June 2025
Year ending 30 June 2026
Year ending 30 June 2027
Year ending 30 June 2028
Year ending 30 June 2029
Year ending 30 June 2030
Year ending 30 June 2031
Year ending 30 June 2032
Year ending 30 June 2033
Year ending 30 June 2034
Year ending 30 June 2035
Year ending 30 June 2036
The scheme commenced on
1 July 2011
Relevant facts
You plan to start your forestry activities in the 2011-12 financial year, planting two varieties of trees, spotted gums and Pinus Radiata.
The plantation land will be leased from a related entity at the nominal cost.
You expect to harvest your spotted gums after 25 years and the Pinus Radiata plantation after 35 years.
You have provided independent evidence which shows that spotted gum plantations can be harvested at between 20 and 30 years depending on growth rates and Pinus Radiata plantations can be harvested at 35 years.
You expect to produce a profit from your plantation activities in the 2035-36 financial year.
You expect your income for non-commercial loss purposes in the 2011-12 to 2035-36 financial years to be above $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
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 expected to be above $250,000 in the 2011-12 to 2035-36 financial years.
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 case, you plan to start your forestry activities in the 2011-12 financial year, planting spotted gums and Pinus Radiata. You expect to harvest the spotted gums in the 2035-36 financial year, or 25 years after you commence and you expect to harvest the Pinus Radiata after 35 years. You have provided independent evidence which shows that spotted gums can be harvested at between 20 and 30 years, depending on growth rates and Pinus Radiata can be harvested after 35 years. You expect to produce a profit from your forestry activities in the 2035-36 financial year.
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 forestry activities for the 2011-12 to 2035-36 financial years.