Private ruling: non-commercial losses
Published: October 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2011

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 business activity in your calculation of taxable income for the 2013-14 financial year? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You commenced a primary production activity in the 2011-12 financial year. You have leased a portion of a property. You purchased a number of cattle. In mid-2012 you purchased fertiliser in order to improve pasture growth. You spread some of the fertiliser throughout the property. You decided to sow a crop in early 2013 using the remaining fertiliser. Despite the soil moisture profile being below the normal boundaries, a crop was sown in the hope of follow up rain. The crop was a failure due to insufficient rain and the tiller of the crop was poor. The calves were placed onto the crop and some mild weight gains were achieved. Winter and spring 2013 were very dry with little rain. You passed the assessable income test in the 2012-13 financial year. You sold a number of steer in early 2014. There were breeding cows and young calves left which had not experienced sufficient weight gain due to lack of rain. The Bureau of Meteorology shows that the property received rainfall that was "severe deficiency" bordering on "lowest on record" for the 2013-14 financial year. The owner of the property has installed a dam to irrigate the top cultivation. You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-10(1). | Income Tax Assessment Act 1997 subsection 35-10(2). | 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, 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. For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances the activity would have passed at least one of the tests. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you meeting one of the four tests. Consequently the Commissioner will exercise his discretion in the 2013-14 year of income.