Private ruling: Commissioner's discretion
Published: August 2013
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

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 relevant financial years? | A1: Yes.

Relevant facts and circumstances: You received a favourable ruling exercising the Commissioner's discretion under paragraph 35-55(1)(c) of the ITAA 1997 for the 200X to the 20YY financial years as you expected to produce a tax profit within a period that is commercially viable for your industry. Your income for non-commercial loss purposes for the relevant income years is greater than $250,000. You commenced your activity in 200Z with initial stock being seedlings and the remainder graftings. Approximately X% were lost as they were potted for too long. You expected a profitable crop in the relevant financial year but did achieve this due to severe weather extremes and the initial loss of X% of the seedlings. The severe weather extremes included: • no or very little rain. Existing dam levels were too low to supplement full irrigation and what irrigation was used evaporated too quickly; • strong winds. This is the key season for the plants however but the wind destroyed them; • excessive rainfall washed away or diluted fertilisers and spoiled soil conditions. These adverse conditions have set back your expected profitable crop at least two years as the lack of rain and the ability to irrigate has slowed the expected growth rate of the trees. Also the loss of X% of your initial stock has impacted on the expected production output.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 35-1' | Income Tax Assessment Act 1997 subsection 35-55(1) | Income Tax Assessment Act 1997 paragraph 35-55(1)(a) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2E).

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: · 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 you do not satisfy the income requirement 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. In 20XX you received a ruling under paragraph 35-55(1)(c) of the ITAA 1997 to allow you to include any losses from your primary production activity in your calculation of taxable income for the 20YY financial year as you had expected a tax profit would be made in the following year. Under paragraph 35-55(1)(a) the discretion may be extended where your business activity was expected to make a tax profit but was affected by special circumstances outside your control and a tax profit did not eventuate. '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 years in question where, but for the special circumstances: · your business activity would have made a tax profit · 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: · but for the special circumstances, you would have made a tax profit · you have met one of the four tests or would have but for special circumstances. Consequently the Commissioner will exercise the discretion for the relevant financial years.