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Ruling

Subject: Non-commercial losses-Commissioner's discretion
Question 1:
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 activity in your calculation of taxable income for the 2010-11 year of income to the 2011-12 year of income?

Answer:

Yes.

Question 2:
Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997 to allow you to include any losses from your primary production activity in your calculation of taxable income for the 2012-13 year of income to the 2014-15 year of income?
Answer

No.

This ruling applies for the following periods

Year ended 30 June 2011

Year ended 30 June 2012
Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2010

Relevant facts and circumstances
In partnership you purchased a primary production property.
No livestock were included in the purchase however there was some cropping in place at the time of purchase.
Independent sources advised that in your type of primary production activity a profit could be expected within four to six years.

Your income for non commercial loss purposes is above $250,000.
Projected income and expenditure statement shows a loss for the 2010-11 and 2011-12 years of income. A profit is expected from the 2012-13 year of income.

Relevant legislative provisions

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

Reasons for decision

Under paragraph 35-55(1)(c) of the ITAA 1997, the Commissioner's discretion can be exercised where the business activity satisfies these requirements.

for an applicant who carries on the business activity who does not satisfy subsection 35-10(2E) (income requirement) for the most recent income year ending before the application is made - the business activity has started to be carried on and, for the excluded years:

(i) because of its nature, it has not produced, or will not produce, assessable income greater than the deductions attributable to it; and
(ii) there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsections 35-10(2) and (2C).

In your case, you do not meet the income requirement as your income for non commercial loss purposes is above $250,000. However, you have supplied evidence from an independent source which has established that your business activity will produce assessable income greater than the deductions attributable to it for that year, 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 2010-11 to 2011-12 years of income. However as a profit is expected from the 2012-13 year of income there is no requirement for the Commissioner to exercise the discretion for the 2012-13 to 2014-15 years of income.