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Edited version of your private ruling
Authorisation Number: 1012525010951
Ruling
Subject: Non commercial losses
Question 1
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 business activity in your calculation of taxable income for the 2012-13 to 2026-27 financial years?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
Year ending 30 June 2023
Year ending 30 June 2024
Year ending 30 June 2025
Year ending 30 June 2026
Year ending 30 June 2027
The scheme commences on:
2012
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are in a partnership (the partnership).
The partnership purchased a property in late 20XX.
During the 20YY financial year you planted trees.
You expect to breakeven in the 20ZZ financial year.
You will pass the assessable income test in 20VV financial year.
You and your partner satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You will satisfy the income requirement for the foreseeable future.
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).
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 up to the 20VV financial year.
Further issues for you to consider
In your primary production activity for the 20WW and future financial years where you meet the income requirement and pass a test the Commissioner's discretion is not required.