Edited version of private advice

Authorisation Number: 1051885263479

Date of advice: 18 August 2021

Ruling

Subject: Commissioner's discretion for non-commercial losses - lead-time

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 losses from a business activity in the calculation of my taxable income for the year ended 30 June 20XX?

Answer

Yes.

Having considered your circumstances and the relevant factors the Commissioner has granted his discretion to allow you to include any losses from your business activity in the calculation of your taxable income for the income year ended 30 June 20XX. It is accepted that 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 the Commissioner's discretion with respect to lead time can be found by searching 'QC 16248' on our website ato.gov.au.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 2020

Relevant facts and circumstances

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

Your income for the financial year ended 30 June 20XX was $X.

You purchased a property in 20XX to live in and farm on that is approximately X acres.

You provided your farm improvement plan.

You commenced business operations on 1 July 20XX as part of a partnership.

There was no cattle, sheep, wheat or saleable crop that came with the purchase of the property.

The gross income for the year ended 30 June 20XX was $X. This was from the sale of sheep/cattle.

Cost of sales $X.

Depreciation $X.

The loss from the activity in the year ended 30 June 20XX was $X.

During that financial year you spent X hours per week on the activities.

You had full time employment until X 20XX. From X 20XX you were not employed.

You obtained your sheep over X financial years.

You obtained your cattle over X financial years.

Sale of sheep in the financial year ended 30 June 20XX was X

Start date of each event:

•                 cattle in X

•                 sheep in X

•                 wheat in X.

For the financial year ended 30 June 20XX you had:

•                 X sheep

•                 X cattle.

You intend to build the sheep stock up to X and cattle to X.

A profit was anticipated in the year ending 20XX.

Contributions made by each activity for the financial year ended 30 June 20XX:

•                 cattle - $X

•                 lambs - $X

•                 wheat - $X.

There are various factors influencing the inherent feature of the activities that has meant there is a period of time from when they commenced to when a tax profit would be made. These related to the quality of the property, climate, capital available and market conditions.

Each of the three activities should provide a positive contribution to the enterprise within X years.

You provided an independent report from Y.

The report provided says in the next year or two you will be making conservatively $X gross income from the farm, plus any grain or hay that may be sold as part of the continued paddock development after fodder requirements are allowed for within the sheep enterprise.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 35-55(1)(c)

Income Tax Assessment Act 1997 subsection 35-10(2E)