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Edited version of your written advice
Authorisation Number: 1012847317039
Date of advice: 29 July 2015
Ruling
Subject: Commissioner's discretion on Non-commercial losses
Question 1
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 primary production business activity in your calculation of taxable income for the 2015 to 2019 financial years?
Answer
Yes.
This ruling applies for the following periods:
Years ended 30 June 2015
Years ending 30 June 2016
Years ending 30 June 2017
Years ending 30 June 2018
Years ending 30 June 2019
The scheme commences on:
1 July 2014
Relevant facts and circumstances
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
• Further information received
You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You carry on a business at State X
The business is primarily concerned with cropping land to sell grains at market price.
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 in the relevant financial years.