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Edited version of your private ruling
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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 primary production business activity in your calculation of taxable income for the 2010-11 to 2016-17 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
The scheme commenced in
1 July 2010
Relevant facts
You commenced your primary production business activity, as a sole trader, in 2010.
You have entered into a long term lease arrangement for the land to free up capital for machinery and improvements.
The leased property is part of a larger that is shared with two other primary production businesses unrelated to your own.
The property has a XX mega litre dam which has the capacity to provide sufficient water for your activities.
Your projected income and expenditure figures show that you expect your activities to produce a small tax profit in the 2017-18 financial year.
You have provided independent evidence from a government agency which considers the commercially viable period for this type of business activity.
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 2016-17 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 was above $250,000 in the 2010-11 financial year and you expect this will be the case in the 2011-12 to 2016-17 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 commenced your primary production business activity in 2010 and expect to produce a small tax profit in 2017-18, or eight years after you commenced. You have provided independent evidence from a government agency which considers the commercially viable period for this type of business activity.
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 primary production business activity for the 2010-11 to 2016-17 financial years.