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Edited version of your private ruling
Authorisation Number: 1012518711425
Ruling
Subject: Non commercial losses
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 business activity in your calculation of taxable income for the 2013-14 to 2016-17 financial years?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2013
Relevant facts and circumstances
Your income for non-commercial loss purposes is above $250,000.
You commenced your current primary production activity in the 200X financial year.
You planted in the 20YY and 20ZZ financial years.
A review of the plantings shows good growth and development.
It is speculated that the first plantings will produce a small amount of produce in year five, with commercial quantities after seven years.
You have already received the Commissioners Discretion to include your losses for the 200X to 20XX financial years. You have provided an updated revenue and expense projection which shows you'll make a profit in the 2017-18 financial year.
You have provided independent evidence which states that it is most probable that commercial production is likely in the seventh year.
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
For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 will apply to defer a non-commercial loss from a business activity unless:
· you meet the income requirement and you pass one of the four tests
· the exceptions apply
· the Commissioner exercises his discretion.
In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business 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 your business activity that there will be a period before a tax profit can be produced
· there is an objective expectation your business activity will produce a tax profit within the 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 you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry.
Consequently the Commissioner will exercise his discretion in the 2013-14 to 2016-17 years of income.