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Edited version of private advice
Authorisation Number: 1051662209577
Date of advice: 01 May 2020
Ruling
Subject: Non-commercial losses - lead time - cattle - income more than $250,000
Question
Will the Commissioner exercise his discretion to allow you to include any losses from your primary productionbusiness activity in the calculation of your taxable income for the 20XX-XX to 20XX-XX financial years?
Answer
Yes. Having considered your circumstances and the relevant factors the Commissioner will exercise his discretion. It is accepted that there is a 'lead time' in the nature of your activity and it will make a tax profit within the commercially viable period for the industry concerned. 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 ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commenced on
1 July 2017
Relevant facts and circumstances
You did not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997 in the 20XX-XX financial year; however, you will satisfy it in the 20XX-XX and 20XX-XX financial years.
You carry on a primary production business of livestock breeding which commenced in the 20XX-XX financial year.
You purchased a property which was stocked with XX head of livestock.
The previous owner's business structure wasn't suitable as it did not fit in with your vision.
You decided to sell off most of the stock acquired with the property and restock.
None of your livestock were ready for sale during the 20XX-XX financial year. Conditioning of the herd has been difficult under drought conditions.
The lead time to get the business operating profitably has been put back due to the drought which has caused problems with the breeding cycles of the livestock.
You have provided a breeding schedule which outlines your plan to increase your herd:
¢ You are currently in the market for another animal which will broaden your breeding base.
¢ In the 20XX-XX financial year your herd will consist of XX breeders, XX one year old XX and XX one year old YY. You sold a small number of livestock which consisted of the remaining stock acquired with the property that were deemed not suitable for your activity.
¢ In the 20XX-XX financial year the livestock numbers will further increase. You anticipate having XX one year old XX, which will be kept for two years and then added to the breeders. The other one year old livestock numbers will also increase to XX. There will be no sales in the 20XX-XX financial year.
¢ Sales will then commence in the 20XX-XX financial year by selling XX head of livestock which will include XX XX and XX older breeders.
You will make a loss from the activity in the 20XX-XX, 20XX-XX and 20XX-XX financial years.
You have provided profit and loss statements projecting that the activity will be profitable in the 20XX-XX 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)(b)
Income Tax Assessment Act 1997 paragraph 35-55(1)(c)