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Edited version of private advice
Authorisation Number: 1051668305965
Date of advice: 30 April 2020
Ruling
Subject: Commissioner's discretion on non-commercial losses
Question
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 in relation to the activity in your calculation of taxable income for the 2018-19 to 2025-26financial 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 pass a test or 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 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
Year ending 30 June 2023
Year ending 30 June 2024
Year ending 30 June 2025
Year ending 30 June 2026
The scheme commenced on:
1 July 2018
Relevant facts and circumstances
You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You carry on a primary production business of growing produce which commenced in mid-2019 (and before 30 June 2019), which was the date that you ordered the first lot of trees (where you paid a 25% deposit and as the new trees require a 12 month inoculation program, you were not able to plant the trees until Autumn in 2020).
A consultant was engaged in late 2018 to prepare the required documentation for the farm establishment project, and the final recommendation was received in early 2019.
You chose a specific species of the produce to be grown.
The produce forms during summer, grows in size during autumn and is generally harvested over winter.
Your intention is to establish the farm in two stages as follows:
- Stage one includes just under 1.5 hectares with a few hundred trees to be planted in Autumn 2020 (classed as a medium sized farm).
- Stage two will include additional land just over 1.5 hectares with a few hundred more trees to be planted in Autumn 2022 (classed as a large farm).
Work commenced to prepare the plot of land cultivated to grow the produce in early 2019, but several items were required to be purchased in 2018 to start the initial set up of the property in readiness for the preparations for that plot of land. The required processes were followed to have first lot of trees planted in Autumn 2020.
The process of establishing the plot of land is one that takes time as the soil conditions in Australia need to be adjusted to suit the growing of the produce. The work involved was over a timeframe of just over a year (between Autumn 2019 and Autumn 2020). Planting of the trees in the plot of land must be in Autumn.
Site analysis is planned for late 2020 for the next new site, and if a new site is deemed appropriate, soil testing will occur shortly after (phase two).
The implementation of phase 2 will follow the same principle as phase 1, with earthworks etc. commencing in Autumn 2021. The new trees will be pre-ordered in Autumn 2021 as they will also require a 12 month inoculation program. The final stages are planned in Autumn 2022. Phase two is expected to add another area of land just over 1.6 hectares in size to add an additional few hundred trees, bringing the entire number of trees up to 1000 (classed as a large farm).
The generally accepted time for your specific type of growing activity to achieve a commercial quantity of produce is eight to ten years. As such we accept a lead time of eight to ten years for a that specific type of business activity.
You intend to make $20,000 in assessable income in the 2026-27 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)