Private ruling: Non-commercial losses
Published: June 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: December 1984

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 2009-10 financial year? | A1: Yes.

Relevant facts and circumstances: You are carrying on a primary production business. The activities carried on consist of livestock and cropping. You had employed permanent plus casual employees. You have provided the independent evidence from the Department of Primary Industries to show that X was declared a drought area for most of the 2009-10 financial year The carry-over effect of the drought has had a negative effect to the operations of the business in the 2010-11 financial year. You have also sent in the projected income and expenditure statements for the 2010-11 financial year. Your income for non commercial loss purposes for the 2009-10 income year will be more than $250,000. You have requested the Commissioner to exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997 for the 2010-11 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35.

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 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 financial 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 in question where, but for the special circumstances: · your 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, and · the special circumstances affecting the business activity6 are outside the control of the operators of the business activity. 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 2010-11financial year.

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