Private ruling: Non commercial losses - Commissioner's discretion
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

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 your share of any loss from your business activity in your calculation of taxable income for the 2010-11 financial year? | A1: Yes. Note: The issue of this ruling of itself does not constitute a decision of the Commissioner under subsection 35-55(1) of the ITAA 1997 that the loss deferral rule in subsection 35-10(2) of the ITAA 1997 does not apply to you for the 2010-11 financial year. That decision can only be made in issuing you your assessment, following lodgement of your income tax return for the 2010-11 financial year. You can lodge this return on the basis that the Commissioner is bound to make this decision as set out in this ruling, where the facts set out in the ruling do not differ materially from the actual facts concerning your business activity.

Relevant facts and circumstances: You are in business. You operate your business in a particular state. You have stated that due to the exceptional circumstances you were unable to effectively operate your business. Subsequently, your income is less than expected for the 2010-11 financial year. You will not meet the assessable income test in this year. For the 2010-11 financial year, you satisfy the <$250,000 income requirement. You met the assessable income test in the 2009-10 financial year. You expect to meet the assessable income test in the 2011-12 financial year due to an increase in customers.

Relevant legislative provisions: Income Tax Assessment Act 1997 Paragraph 35-55(1)(a).

Reasons for decision: Summary: Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997 will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55(1)(a) of the ITAA 1997 that it would be unreasonable to defer the loss. Paragraph 35-55(1)(a) of the ITAA 1997 provides that the Commissioner can exercise the first arm of the discretion where certain special circumstances apply. Special circumstances in this context are those outside the control of the business operator, including those such as drought, flood, bushfire or some other disaster that have materially affected that activity. It is intended that the Commissioner only exercise this arm of the discretion if one of the tests would have been satisfied but for the special circumstances. The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control, and that in the absence of those circumstances, the assessable income test would have been passed for the income year in question. Therefore the Commissioner's discretion under paragraph 35-55(1)(a) will be exercised for the 2010-11 financial year.

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