Private ruling: Non-commercial losses - Commissioner's discretion
Published: October 2011
Ruling period: Year ended 30 June 2009
Date scheme commenced: 1 July 2005

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 year of income? | A1: Yes.

Relevant facts and circumstances: Your primary production business comprised of several hectares producing a product that was contracted to several sale agreements The special circumstance which prevented your business from meeting the assessable income test in the 2008-09 year of income was an extreme heat wave. A local and state industry report stating that the heatwave affected the harvest in the area and in your case, as a result of the heat wave, nothing was harvested in that year. Your assessable income from other sources that did not relate to your primary production business activity for the 2008-09 year of income year exceeded $40,000 because you received an employment termination payment.

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

Reasons for decision: Detailed Reasoning - Employment termination payment: Your annual taxable income does not normally exceed $40,000. In the 2008-09 year of income you received a termination payment from other sources that did not relate to your primary production activity which increased your income above $40,000. There is nothing in the legislation that allows the exceptions shown at subsection 35-10(4) of the ITAA 1997 to apply when your assessable income from other sources exceeds $40,000. There are no other discretions, exemptions or exclusions that apply to your situation in relation to the termination payment that would allow the exceptions as shown at subsection 35-10(4) of the ITAA 1997 to apply to you. | Detailed Reasoning - Special circumstances: 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 ITAA 1997, will be subject to the loss deferral rule in subsection 35-10(2), unless the Commissioner exercises a discretion under section 35-55 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 this 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 natural 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. Your produce was damaged by a heatwave in 2009 and as a result no harvest in that year was possible. As a consequence your assessable income from your business activity for the 2008-09 year of income was reduced to that portion that related to previous year. The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control, namely the heatwave, and that in the absence of those circumstances it was probable that one of the four tests, namely the assessable income test would have been passed, for the year of income in question. Therefore, the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997 has been granted for the 2008-09 year of income.

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