Private ruling: Non commercial losses
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2002

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 primary production activity in your calculation of taxable income for the financial year ended 30 June 2010? | A1: No.



Reasons for decision: Detailed Reasoning - Redundancy: Your annual adjusted taxable income does not normally exceed $XXX,000. In the financial year ended 30 June 20XX you received a redundancy payment which increased your income above $XXX,000. The legislation does not provide for an exemption from the income requirement because of a one-off payment. There are no other discretions, exemptions or exclusions that apply to your situation in relation to the one-off payment and the income requirement. | Detailed Reasoning - Drought: To apply the discretion in paragraph 35-55(1)(a) of the ITAA 1997, the Commissioner should be satisfied that the business activity is affected in the relevant year by the special circumstances. Unfavourable weather conditions leading to drought was outside your control and therefore it is accepted as a special circumstance as this term is used in paragraph 35-55(1)(a) of the ITAA 1997. However, for the Commissioner to exercise the discretion there must be an expectation that a profit would have been made except for the occurrence of the special circumstance. Sales in the years preceding 20XX when your business was not affected by drought did not exceed your expenses in any year and you recorded substantial losses in each of those years. You had planned to sell between 30-40 head of cattle per year of operation and expected $X,000 per head. You expected to sell 20 head of cattle in the 20XX-XX financial year but because of the drought held them over and sold them in the 20XX-XX financial year. If you had sold them in the 20XX-XX financial year at the planned price of $X,000 per head the income would not have exceeded the expenses incurred in that year. If you had sold the planned maximum of 40 head of cattle at expected price of $X,000 per head in any of the financial years from 20XX-XX to 20XX-XX, which includes drought and non-drought years, the income received would not have exceeded expenses in any year. Therefore in terms of paragraph 35-55(1)(a) of the ITAA 1997, special circumstances outside of your control may have affected your business activity in the financial year ended 30 June 2010. However, they have not affected your business to the extent that a profit would have been made had the drought not occurred. There is no scope to allow the Commissioner's discretion under the special circumstances limb in section 35-55 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | · the application for private ruling dated XX November 20XX, | · emails dated X February 20XX and XX March 20XX, | · non-commercial losses evidentiary checklist, | · media release 12 February 2009, | · media release 22 January 2007, | · NSW Department of Primary Industries primefacts May 2007, | · Tax return data from the Storage and Access of Electronic Returns held by the ATO. | Your income for non-commercial purposes was over $XXX,000 in the financial year ended 30 June 20XX due to a redundancy package from your employer. This is preventing you from claiming your business losses in the financial year ended 30 June 20XX. You consider this is a unique situation happening only because of the redundancy payment. | Your income in all previous years has not exceeded $XXX,000. | You are a partner in a partnership that commenced business in 20XX on a property of less than 50 hectares. You currently have permanent breeding stock of 5 head. You expect to sell between 30-40 head of cattle per year at approximately $XXXX per head. | The information provided from the Department of Agriculture, Fisheries and Forestry confirms that the area of the location of your farm was drought affected from January 2007 to March 2009. | Your beef cattle farming activity was affected by the drought and as a result you were unable to sell or breed cattle in the years 20XX to 20XX. The breeding program was temporarily stopped in 20XX due to the drought but recommenced in the 20XX financial year. | You were forced to hold over cattle sales planned for the 20XX year due to the condition of the stock after the drought. This stock of cattle was sold in July 20XX and realised $XX,000 in assessable income. You intend selling further cattle prior to the end of the 20XX financial year. | You had high interest deductions in the last three years due to substantial investment in plant and equipment. The debt has now been paid out in full. Your income from the farming activity did not exceed your expenses for the 20XX-XX to 20XX-XX financial years.