The AAT has held it would not be reasonable for the Commissioner to exercise his discretion under s 35-55 of the ITAA 1997 (the non-commercial loss rules) to allow a taxpayer to deduct winery business losses from her other income.
The taxpayer established a vineyard in WA in a joint venture partnership. She applied for a private ruling for the Commissioner to exercise his discretion under s 35-55 to allow her to offset the losses from the winery venture for the income tax years 30 June 2010 to 30 June 2018 against her other income. The Commissioner declined to make the ruling on the basis that the vineyard could produce sufficient assessable income in a much shorter time than the taxpayer’s projections. The taxpayer contended that a staggered planting approach which was slower was the commercially prudent approach according to experts.
The AAT noted that although it was provided with convincing business reasons why the staggered planting approach would make more commercial sense, it said the test in s 35-55(1)(c)(i) was whether the business, due to its nature, will not produce assessable income greater than deductions during the 9 year period as contended by the taxpayer. Based on the evidence, the AAT held that vines can be planted and become productive within 5 years, therefore the taxpayer was unable to satisfy s 35-55(1)(c)(i) and it would not be reasonable to exercise the discretion in the taxpayer’s favour.
(AAT Case [2013] AATA 3, AAT, Ref No 2011/2706, McCabe SM, 8 January 2013.)
[LTN 6, 10/1/13]