Edited version of private advice

Authorisation Number: 1052084166332

Date of advice: 6 March 2023

Ruling

Subject: Commissioner's discretion - 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 from your business activity in your calculation of taxable income for the 20XX-XX to 20XX-XX financial years?

Answer

Yes.

Having regard to your full circumstances, it is accepted that it is the nature of the business activity that has prevented you from meeting one of the four tests or making a tax profit. It is also accepted that you will pass the assessable income test or make a tax profit within the commercially viable period for your industry. Consequently, the Commissioner will exercise his discretion in the years ending 30 June 20XX to 30 June 20XX.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 September 20XX

Relevant facts and circumstances

You operate the business as a partnership.

You carry on a XXXX farm business in State of XXX. The property has a total land size of X.XX hectare comprising X.X hectares of planted XXXX, working areas and sheds. Your main residence is located on the property.

You commenced the XXXX business in September 20XX and planted XXX XXXX trees.

Your income for non-commercial loss purposes in the income year prior to the income year of the ruling application was less than $XXX.

You advised that XXXX may commence bearing fruit from approximately five years of age.

You advised that by the fifth year, half a tonne to the acre can be the expected yield, at $XX,XXX per tonne.

You have provided your projected income and expenses for the 20XX-XX to 20XX-XX financial years. You indicated that:

•         expenses such as water, fuel for equipment and fertilisers will increase as the trees continue to mature and require more product/moisture, including electricity of irrigation pumps

•         depreciation expenses related to full expensing applied to the shed wiring and slasher. You have allowed a nominal amount of $XXX for future items (20XX FY onwards) for future purchases

•         the XXXX trees have been recorded as an asset and added to the depreciation schedule. No depreciation is to be claimed until such point as the trees produce income. You have allowed XXX depreciation on the trees in the 20XX-XX year in the projected profit and loss.

You expect your business activity to meet the assessable income test in the year ending 30 June 20XX and produce approximately $XX,XXX in assessable income.

You expect to make your first profit in the year ending 30 June 20XX.

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)