Private ruling: Non commercial losses
Published: August 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your cattle farming activities in the calculation of your taxable income for the 2010-11 financial year? | A1: No.

Relevant facts and circumstances: You operate a cattle farm on more than X,000 acres of land. You have several hundred head of cattle. You operate the farm on a part time basis. You are employed part time in another industry. You commenced your business more than 20 years ago. You satisfy the assessable income test, the real property test and the other assets test. You received a lump sum termination payment of approximately $XX,000 in the 2010-11 financial year from your employer, which caused your income for non-commercial loss purposes to exceed $250,000. Your wages income in the future are expected to gross approximately $XXX,000 per annum.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-55(1)(a).

Reasons for decision: Summary: The Commissioner will not exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 (special circumstances) to allow you to include any losses from your business activity in your calculation of taxable income for the 2010-11 income year. There are no special circumstances that have affected your business activity. You have not been able to pass the income requirement test (under $250,000) because of a redundancy payment. There is nothing in the legislation that allows an exemption from this test because of a one-off payment. | Detailed Reasoning - Detailed reasoning: For the 2009-10 income year there have been changes to the non-commercial losses legislation to limit the circumstances where business losses can be offset against other income. The introduction of the income requirement test means that individuals with income for non-commercial loss purposes in excess of $250,000 for that year will not get access to the four tests. To be able to claim your losses in that year you have to be able to obtain the Commissioner's discretion under section 35-55 of the ITAA 1997 or meet one of the exclusions. You have requested the Commissioner's discretion on the basis that your business was affected by special circumstances in the 2010-11 year. You have not been able to meet the income requirement test because you received a redundancy payment from your employer, not because of special circumstances that affected your business. In the 2010-11 financial year you received a redundancy payment which raised your income above $250,000. Your annual taxable income does not normally exceed $250,000. There is nothing in the legislation that allows an exemption from this test because of a one-off payment. In terms of paragraph 35-55(1)(a) of the ITAA 1997, there are no special circumstances outside of your control that affected your business activity in the 2010-11 year. There is no scope to allow the Commissioner's discretion under the special circumstances limb in section 35-55 of the ITAA 1997. There are no other discretions, exemptions or exclusions that apply to your situation. The business losses for the 2010-11 financial year will be deferred until such time that: you pass the income requirement and one of the tests; you meet one of the exceptions; the Commissioner's discretion is granted; or the business makes a tax profit.

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