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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 forestry plantation business in your calculation of taxable income for the 2010-11 to 2021-22 financial years?
Answer: Yes.
This ruling applies for the following period
Year ended 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
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
The scheme commenced on
1 July 2010
Relevant facts
You commenced your forestry plantation business activities in 2011.
The area where the plantation is situated receives high rainfall and has good soil; there are many other plantations in the area.
You planted approximately XX,000 trees in the winter of 20xx. The plantation establishment costs were approximately $xx,000.
The plantation has been established with the help of professional foresters.
The trees will be harvested in approximately xx years and you expect to produce xx tonnes per hectare and, at approximately $xx per tonne, you expect a total return of around $xxx,000.
You have provided independent evidence, from a government department, which states that your variety of trees can be harvested at between xx and xx years, depending on its intended use.
Your income for non-commercial loss purposes in the 2010-11 financial year was above $250,000 and you expect this will be the case for the 2011-12 to 2021-22 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 the 2010-11 financial year and you expect this will be the case in the 2011-12 to 2021-22 financial years as well.
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 have established a forestry plantation and expect to harvest the trees in approximately xx years. You have provided independent evidence which states that your variety of trees can be harvested at between xx and xx years, depending on its intended use.
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 plantation business activities for the 2010-11 and 2021-22 financial years.