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Edited version of your written advice
Authorisation Number: 1051220996826
Date of Advice: 5 May 2017
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 business activity in your calculation of taxable income for the 2015-16 financial year?
Answer
Yes
This ruling applies for the following period(s)
Year ended 30 June 2016
The scheme commences on
1 July 2015
Relevant facts and circumstances
You are carrying on a business of animal breeding which commenced in MMYYYY.
Your income for non-commercial loss purposes for the financial years 2015-16 is more than $250,000.
You have provided your profit and loss statements for the 2014-15 and 2015-16 financial year's showings the business failed to make a profit in these years.
You have provided projections to show you will pass a test and/or make a profit within the commercially viable period for the industry.
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 Income Tax Assessment Act 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, 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 the 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 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 you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry.
Therefore, the Commissioner will exercise the discretion in the 2015-16 financial year.