Edited version of your private ruling

Authorisation Number: 1012452655915

Ruling

Subject: Commissioner's discretion - lead time

Question:

Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the ITAA 1997 to allow you to include any losses from your primary production business activity in the calculation of your taxable income for the relevant financial year?

Answer:

Yes

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You acquired a property in the relevant financial year. The entire property was fallow when purchased as the vendors had retired from farming several years previously.

You planted the entire area soon after purchase and commenced harvesting late in the relevant financial year.

You received no assessable income from the activity in the relevant financial year.

You have since received payments of more than $X for the crop in the subsequent financial year.

Your income for non-commercial loss purposes in the relevant financial year was over $Y but less than $250,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 35-55

Reasons for decision

The Commissioner's discretion - lead time 

You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997.

Under paragraph 35-55(1)(b) of the ITAA 1997, the Commissioners discretion can be exercised where: 

· the business activity has started to be carried on but because of its nature it has not satisfied, or will not satisfy, one of the tests set out in sections 35-30, 35-35, 35-40 or 35-45 of the ITAA 1997; and  

· there is an objective expectation that within a period that is commercially viable for the industry concerned the activity will meet one of the tests listed above or produce assessable income for an income year greater than the deductions attributable to it for that year.  

TR 2007/6 sets out the Commissioners interpretation of the exercise of the Commissioners discretion under paragraph 35-55(1)(b) of the ITAA 1997. The following has been extracted from paragraphs 70 to 104 of this Ruling. 

The discretion is provided to ensure that certain individuals who carry on genuine commercial businesses are not disadvantaged due to particular circumstances which prevent them from satisfying tests 1 to 4. 

This arm of the safeguard discretion will ensure that the loss deferral rule in section 35-10 of the ITAA 1997 does not adversely impact on taxpayers who have commenced to carry on activities which by their nature require a number of years to produce assessable income. The paragraph is intended to cover a business activity that has a lead time between the commencement of the activity and the production of any assessable income. Such activities have an inherent characteristic that cannot be overcome by conducting the business activity in a different way but only by changing the nature of the business. 

It is accepted that it is in the nature of your activity there will be a lead time before a profit can be expected or, one of the tests passed. For this reason, your business activity has not satisfied one of the tests in the relevant financial year.

The information you have provided demonstrates that there is an objective expectation that your business activity will pass one of the tests (the assessable income test) in the subsequent financial year, one year after commencing your activities. It is further accepted that this will be within a commercially viable period for your industry.

Therefore, the Commissioner will exercise the discretion available in accordance with paragraph 35-55(1)(b) of the ITAA 1997 in relation to your primary production business activity for the relevant financial year.