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 under paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include a share of losses from your fruit growing business in the calculation of your taxable income for the 2009-10 financial year? | A1: Yes


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

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 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, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and you do not come under any of the exceptions. Your business 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. For individuals who do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances: · your business activity would have made a tax profit · the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. Further, it is accepted that: · but for the special circumstances, you would have made a tax profit · you have met one of the four tests or would have but for special circumstances. Consequently the Commissioner will exercise his discretion in 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 are a partner in a partnership which grows fruit on an orchard. | The trees reached full production maturity in 200X. | In the 2009-10 financial year there was an a shortage of this fruit. The price you would have received from the sale of your fruit was more than double your estimates. | You appointed a manager to look after all aspects of orchard development, tree maintenance and also handling all sales and marketing issues. | During the 2009-10 financial year, an incident occurred which resulted in significant damage to the fruit orchard. This incident severely affected the 2009-10 harvest and future harvests. | Your income from other sources during the 2009-10 financial year exceeded $250,000. | You predicted you would have made a taxable profit but for the spraying incident.