Private ruling: non commercial losses
Published: July 2011
Ruling period: Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2008

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 primary production activity in your calculation of taxable income for the 2008-09 to 2010-11 financial years? | A1: No

Relevant facts and circumstances: You operate a primary production business You sell produce either wholesale or at local market stalls. Your strategy has been to stockpile produce until higher prices could be obtained. Only retail market sales occurred during the 2007-08 to 2009-10 financial years. You had no contracts in place for the sale of produce wholesale. You submit that during the last few years prices have been affected dramatically by cheap imports. During the 2008-09 financial year major diseases destroyed much of the produce and you incurred significant treatment expenses.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 Paragraph 35-55(1)(a) | Income Tax Assessment Act 1997 Subsection 35-10(2)

Reasons for decision: Summary: Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: · you satisfy the income requirement (for the 2009-10 and later financial years) 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. The information you have provided demonstrates that even if the disease had not affected your produce that your business activity would still not have passed the assessable income test in the 2007-08 to the 2010-11 financial years. Therefore the Commissioner will not exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 for the 2008-09 to 2010-11 financial years as you have not proven that special circumstances prevented you from meeting one of the four tests.

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