Private ruling: Non-commercial losses - Commissioner's discretion
Published: May 2013
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
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 farming activity in your calculation of taxable income for the 200X and 200Y financial years? | A1: Yes.

Relevant facts and circumstances: You conduct a primary production activity. Information is provided that your region suffered drought and had rainfall below median throughout the 200Z to the relevant financial year. You passed the assessable income test for the 200Z and 200V financial years. Because of the drought during the 200X and 200Y financial years sales were reduced to allow build up of stock and offset lower than expected birth rates and the loss of a number of head of livestock. The remaining livestock were in no condition for sale and were needed to support the growth of the ongoing business enterprise. This was successful as you passed the assessable income test in the relevant financial year. Your income for non-commercial loss purposes is less than $250,000.

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

Reasons for decision: Summary: For the 2009-10 and later income 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, 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 years 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 years 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 200X and 200Y financial years.