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Ruling
Subject: non-commercial losses - Commissioner's discretion
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in your calculation of taxable income for the 2011-12 to the 2013-14 income years?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2010
Relevant facts and circumstances
Your income for non commercial loss purposes for the 2011-12 income year was less than $250,000 and you expect this to be the same for the years up to the 2013-14 income year.
You commenced your business in 2010 installing infrastructure and planting with the intention to increase the area under production progressively over several years.
You expect to pass the assessable income test in the 2014-15 income year and to be profitable in the 2016-17 income year.
The Department of Primary Industries guidelines advise that it will take four to five years to reach full production and your financial forecast predicts you will pass the assessable income test within that period.
Relevant legislative provisions
Income Tax Assessment Act 1997 paragraph 35-55(1)(b).
Reasons for decision
For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:
· you satisfy the income requirement and you pass one of the four tests
· the exceptions apply
· the Commissioner exercises his discretion.
In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion.
The relevant discretion may be exercised for the income year in question where:
· it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests
· there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry.
Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry.
Consequently the Commissioner will exercise his discretion in the 2011-12 income year to the 2013-14 income year.