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Edited version of your written advice
Authorisation Number: 1012758761067
Ruling
Subject: Non-commercial losses - Commissioner's discretion
Question
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 primary production business activity in your calculation of taxable income for the 2013-14 financial year?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
The scheme has commenced
Relevant facts
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• The application for private ruling.
You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You carry on a business of livestock farming.
You commenced business operations in the relevant financial year.
You submit that the standard lead time in the industry to produce income is 2.25 years, due to the 9-month gestation period and then 18 months for them to reach maturity for the market.
You expect to make $20,000 in assessable income in the 2014-15 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)
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 year 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 there will be a lead time before a profit can be expected or one of the tests 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 2013-14 financial year.