Private ruling: Non-commercial losses - Commissioner's discretion
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

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 2009-10 financial year? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-55 | 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 carried on by a taxpayer who is an individual, unless: · the individual's business activity meets one of the four tests and the income requirement is also satisfied; · the Commissioner has exercised the discretion in section 35-55 of the ITAA 1997; or · the individual comes within the Exception contained in subsection 35-10(4) of the ITAA 1997. You have not satisfied the income requirement as the relevant income exceeds $250,000 and the Exception in subsection 35-10(4) of the ITAA 1997 does not apply. Losses made from the activity in this year are therefore subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997 unless the Commissioner decides under paragraph 35-55(1)(a) of the ITAA 1997 that it would be unreasonable for this to occur. The Commissioner's discretion in paragraph 35-55(1)(a) may be exercised for the income year in question where the business activity is affected by special circumstances outside the control of the operators of the business activity. 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. For those individuals who do not satisfy the income requirement, special circumstances are those which have materially affected the business activity, causing it to make a loss. For these individuals the Commissioner's discretion in paragraph 35-55(1)(a) may be exercised for the income year(s) in question where: · but for the special circumstances, the business activity would have made a tax profit; and · the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. You have provided information supported by independent evidence that demonstrates the primary production activity was in a drought affected area. As a result of the drought your yield was significantly reduced. Consequently your assessable income was reduced and combined with the additional expenses incurred resulted in a loss for the income year. This circumstance, in the form of the drought, was outside your control and therefore it is accepted as a 'special circumstance' for the purposes of paragraph 35-55(1)(a) of the ITAA 1997. You have passed three of the four tests and based on the information you provided, the Commissioner is satisfied that the primary production activity would have made a profit in the year ended 30 June 2010 had it not been affected by drought. Consequently the Commissioner concludes that the requirements of paragraph 35-55(1)(a) of the ITAA 1997 have been met and it would be unreasonable to apply the rule in section 35-10 of the ITAA 1997 to defer the loss for the 2009-10 financial year.

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: You and your spouse are in partnership owning and operating an irrigated farming property. | You have been in the business since 19XX. | For the past number of years, your area has been drought declared. | You have recorded a profit in two years since the 200XX financial year. | You estimate that if not for the effects of the drought, you could have expected an additional $X income from the crop. Your expenses could have been an extra $X if not for the drought. | You incurred an additional $X expenses because of the drought. | You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year. | Your activity satisfies the Assessable Income, Real Property and the Other Assets Tests.