Private ruling: NCL - Special Circumstances
Published: December 2013
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income? | A1: No

Relevant facts and circumstances: You and your partner operated a business which has now ceased. Your business was located in an industrial estate. There was no signage facilities provided by the landlord, for the business. Customers therefore had a lot of trouble finding your business. The rain would sometimes affect your ability to operate your business. You state that your trading suffered due to your business being located in an industrial estate. The landlord evicted you. The increased use of specific websites impacted dramatically on your business.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35, | Income Tax Assessment Act 1997 Subsection 35-10(2) and | Income Tax Assessment Act 1997 Paragraph 35-55(1)(a).

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: · you satisfy the income requirement and you pass one of the four tests · the exceptions apply, or · the Commissioner exercises his discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. The relevant discretion may be exercised for the income year in question where your business activity is affected by special circumstances outside your control. 'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster. Taxation Ruling TR 2007/6 sets out the Commissioner's interpretation of the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 47 to 53 of this ruling: Although not limited to natural disasters, paragraph 35-55(1)(a) of the ITAA 1997 refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity. In application to your case you have requested that the Commissioner exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 in the 2013 and 2014 financial years. You have requested the Commissioner's discretion due to a number of factors including the location of your business, a lack of available signage, the existence of specific websites. The question that must be addressed is whether the situation described is considered special circumstances. It is not accepted that these circumstances constitute special circumstances in the way this term is used in the legislation. We believe things such as the existence of competitors and availability of a suitable customer base to be normal business considerations and a standard risk of carrying out a business. Therefore, the Commissioner will not exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the years in question. | Detailed Reasoning - Deferred losses where a business has ceased.: Taxation Ruling TR 2001/14 discusses the issue of deferred losses when a business activity ceases to be carried on. It states, at paragraph 55: In some cases an individual taxpayer's circumstances may change leaving issues about their ability to deduct the full extent of any loss made. Any amount deferred under subsection 35-10(2) will only be deductible in a subsequent year if the business activity that gave rise to this amount, or one 'of a similar kind', is carried on in that subsequent year. If the activity, or one 'of a similar kind', is never carried on again, the entitlement to deduct the amount will be lost. In your case, the business activity that gave rise to your deferred losses has now ceased. If this business activity, or one of a similar kind, is never carried on again, you will be unable to claim the losses in the future and they will be lost.