Edited version of your private ruling

Authorisation Number: 1012610687502

Ruling

Subject: Non-commercial losses - Commissioner's lead time 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 years ended 30 June 2013 and 2014?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2007

Relevant facts

In reaching a decision we have relied on the information provided in your application for private ruling on the exercise of the Commissioner's discretion in paragraph 35-55(1)(b) of the ITAA 1997.

You operate a primary production activity.

The profit projections you have provided show you will pass the assessable income test in the year ending 30 June 20XX, your Z year of operation.

The evidence available in this office and information you have provided suggests that the commercially viable period for this industry will be 4-5 years from the time of planting, at which time first commercial harvest is expected. You have provided information from various sources indicating that the product needs to be matured for some years before sending to market.

You state your activity has not satisfied and will not satisfy any of the tests set out in sections 35-30 (assessable income test), 35-35 (profits test), 35-40 (real property test) or 35-45 (other assets test) of the ITAA 1997 until the year ended 2015.

Your other assessable income for NCL purposes is less than $250,000 but greater than $40,000.

You have applied for the Commissioner's discretion for the 2012-13 and 2013-14 income years.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph 35-55(1)(b).

Income Tax Assessment Act 1997 section 35-55.

Reasons for decision

The discretion in paragraph 35-55(1)(b) of the ITAA 1997 may be exercised where:

(i) the business activity has started to be carried on and for that or those income years

(ii) because of its nature it has not satisfied, or will not satisfy, one of the tests set out in Division 35 of the ITAA 1997, and

(iii) there is an expectation that the business activity of an individual taxpayer will either pass one of the tests or produce a taxation profit within a period that is commercially viable for the industry concerned.

Based on the information you have supplied your activity has gone beyond any preliminary activities and can be said to have commenced as a business activity.

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 activity has not previously satisfied one of the tests and will not satisfy one of the tests in the years ended 30 June 2013 and 2014.

The information you have provided demonstrates that there is an objective expectation that your business activity will pass the assessable income test in the year ending 30 June 20XX.

It is further accepted that meeting a test within Z years of commencing your activity will be within a commercially viable period for your industry. This decision is based on the evidence available in this office for the commercially viable period for the industry and additional time required in your activity for maturity of the product.

Therefore, the Commissioner's discretion will be granted for the years ended 30 June 2013 and 2014.

ATO view documents

Taxation Ruling TR 2001/14

Taxation Ruling TR 2007/6