Private ruling: The Commissioner's discretion for non-commercial business losses
Published: August 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 13 April 2000

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 2012-13 financial year? | A1: Yes

Relevant facts and circumstances: You and your spouse carry on a primary production business. You commenced business operations a number of years ago. During the previous three financial years the business passed the assessable income test with sales exceeding $20,000. You submit that you were affected by special circumstances (the event) in the 2012-13 financial year. The special circumstances prevented the business from earning assessable income greater than $20,000 in the 2012-13 financial year. You were eligible for government benefit payments due to the damage of the event. The payments were paid for the clean-up and restoration costs for your business. Once the farm is back in full operation the breeding program can be resumed and animal numbers can increase. Further farmland regeneration, including ground fertilizing and seed planting for animal feed can also take place. Your income for non-commercial loss purposes for the 2012-13 income year was 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, or • 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. 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. Therefore the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997 has been granted for the 2012-13 financial year.