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Edited version of your written advice
Authorisation Number: 1012829197804
Date of advice: 24 June 2015
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 2014 financial year?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
Your income for non-commercial loss purposes is more than $250,000.
Your taxable income in 2014 was inflated due to one off payments.
If not for these one off amounts, your taxable income would have been below $250,000.
You pass the Real property test.
You operate a farm.
You planted two different types of crops in X, 80% were A and the remainder 20% were B.
The first small crop was harvested in X.
You found that B crops have greater potential for profit and therefore you planted X B crops in X.
Approximately X A and X B crops have survived.
You have provided independent evidence that attests to a commercially viable period of 5-10 years for your industry.
You intend to make a tax profit in the 20XX 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)
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 (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 2014 financial year.