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Edited version of your written advice
Authorisation Number: 1012747048206
Ruling
Subject: Non-commercial losses - lead time discretion
Question
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 business activity in your calculation of taxable income for the 2014-15, 2015-16 and 2016-17 financial years?
Answer
Yes.
This ruling applies for the following periods
1 July 2014 to 30 June 2017
The scheme commenced on
1 July 200X
Relevant facts
You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You state that you are carrying on this activity as a business.
You previously provided independent evidence suggesting the commercially viable period for your industry will be 10 to 20 years from the time of planting at which time the first harvest can be expected.
You previously provided profit projections showing that your business would begin to produce a taxation profit by the 2014-15 income year, 8 years after the planting. Slower growth than anticipated due to the climatic conditions which have existed in recent years, has led to the previous projections proving to be optimistic, but achievable within an extended period of three years.
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 financial years, Division 35 of the ITAA 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 in the 2013-14 income year (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 financial years in question.