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Edited version of private advice
Authorisation Number: 1051611672817
Date of advice: 2 December 2019
Ruling
Subject: Non-commercial losses
Question
Will the Commissioner exercise the discretion to allow you to include any losses from your business in the calculation of your taxable income for the 20XX to 20XX income years?
Answer
Yes.
Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted there is a 'lead time' in the nature of your business activity and you will make a tax profit within your industry's commercially viable period. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You conduct your farming business at your property.
Your property was acquired in 20XX.
Your property consists of several parcels of land most of which is cleared grazing land with improvements. The land is good quality farming land suitable for livestock. The property is suitable only for primary production business purposes and is not suitable for use as private or domestic land. The land is within the farm zone.
The property has water frontage which is a permanent water course with substantial water holes.
Water is pumped from the creek to a large water storage tank and then gravity fed into a system of water troughs across the property.
A bore was installed to provide a backup water supply.
In addition to the stock troughs there are ground tanks/dams.
There are some plantations which shelter stock.
Structural improvements on the land include:
- A manager's residence.
- A large storage shed.
- A large machinery shed.
- A management office and workshop incorporating a bunkroom, kitchen and bathroom facilities for contract labour.
- A sheering shed.
- Steel stock yards including loading and unloading ramp.
- A heavy duty stock water storage tank.
The land includes a licence to use an unmade government road which runs through part of the property
The district has a secure and reliable rainfall with an average annual recorded rainfall of 750mm or 30 inches. The distribution of rainfall is predominately between April and November.
The property has a balance of highly productive black volcanic loam soils, reddish brown clay loams and alluvial creek flats well suited for grazing stock.
In 20XX an initial stock was purchased for $X.
In addition, you undertook expenditure on equipment including a small tractor, ATV and other items totalling approximately $X.
In the 20XX-XX income year there has been continued investment as required to properly manage the business including:
- Purchasing a utility with carry tray.
- Replacing the pump from the river to the water storage tank.
- Purchasing a larger tractor, a stock trailer, firefighting pump etc.
In addition, a part-time farm manager has been employed as well as casual staff and contractors to undertake the repairs and renovation of the management office and work shed.
At 30 June 20XX the closing stock figures were X.
At 30 June 20XX the closing stock figures were X.
During the 20XX-XX income year:
- Opportunistic stock purchases at foot at a cost of $X.
- As a result of the purchases referred to in the previous paragraph, total breeding cow stock by year end will be approximately X.
- Fattened stock have been sold - generating revenue of approximately $X. This is greater than we expected primarily because of the drought conditions experienced over the 2018-19 summer which prevented retaining stock for breeding.
- The 20XX stock (born on site) will be weaned and an assessment made of the numbers to be retained for breeding and the prospects of sale of the remainder.
The strategy is to retain good breeding stock from each season (were possible) to build a breeding stock to a base level; assuming seasonal conditions allow this expansion. Based on the breeding outcomes over the first 18 months, it is anticipated that to get to the base herd of X will require a program over another 2-3 years. Alternatively, the opportunistic purchase of quality breeding stock may be considered depending upon market conditions.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 35-1
Income Tax Assessment Act 1997 - Subsection 35-10(2E)
Income Tax Assessment Act 1997 - Subsection 35-33
Income Tax Assessment Act 1997 - Paragraph 35-55(1)(b)
Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c)