Private ruling: non-commercial losses
Published: February 2012
Ruling period: Year ended 30 June 2010 Year ended 30 June 2011
Date scheme commenced: 1 July 1965

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 business activity in your calculation of taxable income for the 2009-10 to 2010-11 financial years? | A1: 

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a primary production business. Your role in your farming business was as farm manager The primary production activities conducted on the land were largely profitable until the onset of drought in the late 1990's to late 2010. The drought resulted in significant economic and emotional stress. In the 2007-08 financial year you became ill. From mid 20xx onward you were unable to perform your duties due your medical condition. Your inability to work as a farm manager severely impacted on the profitability and strategic direction of the farm business due to the institutional knowledge you held in relation to the business. You have provided evidence that, but for the events, you would have made a profit in the relevant years. You have also taken steps to mitigate the extent of the impacts these events had.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-10(1) Income Tax Assessment Act 1997 subsection 35-10(2) 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 unless: o you satisfy the income requirement and you pass one of the four tests o the exceptions apply, or o 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 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 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(s) in question where, but for the special circumstances: o your business activity would have made a tax profit o the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. 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: o but for the special circumstances, you would have made a tax profit o you have met one of the four tests or would have but for special circumstances. Consequently the Commissioner will exercise his discretion in the 2009-10 and 2010-11 financial years.

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