Private ruling: Non-commercial losses - Commissioner's discretion
Published: July 2013

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 crop growing enterprise in your calculation of taxable income for the 2012-13 and 2013-14 financial years? | A1: Yes. This ruling applies for the following periods Year ended 30 June 2013 Year ending 30 June 2014 The scheme commenced on 1 July 2012


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 Income Tax Assessment Act 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, none of the exceptions would apply and although you satisfy the income requirement, you do not (or will 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 in question where, but for the special circumstances the activity would have passed at least one of the tests. You advise that your activities in the 2012-13 and 2013-14 financial years were/will be affected by significant rain events causing disease problems leading to lower yields due to further time taken to 're-grow' the crop. These events prevented you from meeting the assessable income test. However, with the crop maturing and reaching full capacity, you expect to be profitable again in the 2014-15 year. 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. Consequently the Commissioner will exercise his discretion in the 2012-13 and 2013-14 financial years.

Relevant facts: You operate, in partnership with your spouse, a crop growing business. | Previously the crop was harvested and turned into another product on your behalf by a local producer. The end product was then stored and sold on the bulk market and you were paid for your crop when the final product was sold. | In the year ended 30 June 2010 the combination of the drought, and a restriction on your water allocation, devastated the crop and production was severely reduced. | You previously received the Commissioner's discretion to allow you lead time to 30 June 2012 in the conversion of your existing crop into a higher yielding crop due to climate conditions. | The demand for the new crop product is higher, and more stable, than the previous product. | You did the first stage of the grafting of a section of your crop in late 2010 but due to summer floods in the area over half of the crop did not survive due to both the flood itself and disease after the waters subsided. | You had expected the first full production crop in the year ended 30 June 2013. | You replanted sections of the crop again after the flood event and have got your first crop of the new variety however they have yielded a much lesser amount than the tonnage anticipated as full production in the original private ruling due to the time taken to re-grow the crop. | You expect the crop growing activity will reach full capacity and make a profit again in the 2014-15 financial year. | You each earned over $40,000 from activities not associated with the crop growing business and each of your incomes for the income requirement test is less than $250,000.