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Edited version of your private ruling
Authorisation Number: 1012476537825
Ruling
Subject: Non-commercial losses
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the 2011-12 and 2012-13 financial years?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ending 30 June 2013
The scheme commences on:
On or after 1 July 2011
Relevant facts and circumstances
You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You carry on a business.
The business is primarily concerned with raising animals for sale to breeders. A small percentage of animals will be sold for meat.
You commenced business operations during the relevant financial year.
You intend to make $20,000 in assessable income in the 2013-14 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 35-10(1)
Income Tax Assessment Act 1997 subsection 35-10(2)
Income Tax Assessment Act 1997 subsection 35-10(2E) and
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.
Although you have not provided data from an independent source, 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 pass the assessable income test.
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 and 2012-13 financial years.