Edited version of your written advice

Authorisation Number: 1013070948716

Date of advice: 15 August 2016

Ruling

Subject: Non-commercial losses

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 primary production business activity in your calculation of taxable income for the 2015 to 2031 financial years?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2015 through to year ending 30 June 2031.

The scheme commenced on:

1 January 200X

Relevant facts and circumstances

You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

You carry on a primary production business, in a particular industry.

You have previously applied for, and were granted, two other private binding rulings in connection to this activity:

• Commissioner's discretion granted due to lead time

• Commissioner's discretion due to special circumstances

Your first ruling was based on lead time and covered a five year period.

The second ruling was based on special circumstances. This ruling covered a three year period.

You have not yet received any income from your business activities.

Due to the difficulties you have faced with poor seed germination and die-off of your trees, as well as the significant fall in the price of your produce in recent years, you have decided to use any produce that are harvested, to in-fill plant back into your own land rather than sell them. You expect you will do this until year 15.

You have provided independent evidence that attests to a commercially viable period of 15 to 20 years for your industry.

You expect to commence harvesting your trees 25 years after your activities commenced.

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)(a)

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

We acknowledge that although the specific industry bodies state the lead period for a commercially viable harvest is approximately 15 to 20 years, we have also taken into consideration that you experienced special circumstances, setting your crops and potential harvests back by up to three years.

Therefore, 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 to allow you to include any losses from your primary production business activity in your calculation of taxable income.