Private ruling: Non-commercial losses and the 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 nut farming enterprise in your calculation of taxable income for the 2009-10 financial year? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | 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 satisfies 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 satisfied the income requirement as the relevant income does not exceed $250,000. The activity has not satisfied any of the four tests 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 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 advise your activity was affected by a natural disaster. While we accept that the effects of the natural disaster have affected your activity, any income derived from the sale of the crop would not have been accounted for in the 2009-10 financial year. Rather, the sale of any crop in the specified period would have been accounted for in the 2010-11 financial year. Thus, it cannot be established that the natural disaster prevented you from satisfying one of the tests in the 2009-10 financial year. In view of the above, the Commissioner's discretion in respect of special circumstances will not be exercised for the 2009-10 financial year. Therefore, you must defer the loss to a future year where the loss can be claimed against a profit from your business activity.

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 commenced business of farming in 200X. | The property had a number of trees which were already planted. | You have provided evidence that your trees were affected by a natural disaster. | You estimate that 30% of the crop was lost. | Any crop that could have been harvested between the natural disaster and prior to 30 June 2010 would have been sold and you would have received payment for them in the 2010-11 financial year. | You satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was less than $250,000 in the 2009-10 financial year. | Your income from other sources not related to the nut activity is more than $40,000.