Private ruling: Non-commercial losses - Commissioner's discretion
Published: December 2013
Ruling period: Year ending 2013
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 business in your calculation of taxable income for the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: You operate a primary production business activity. In early 2013, a major flooding event occurred in the region where the property is situated and the entire farm was covered in flood water for six days. As a result, pastures and fencing were lost and livestock have only recently been able to return to the property. Many farmers were forced to sell their livestock resulting in a drop in prices in the local market. The assessable income from the activity in the 2012-13 financial year was less than $20,000. The activity passed the assessable income test in the 2011-12 financial year. Your income for non-commercial loss purposes in the 2012-13 financial year was less than $250,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Division 35 | Income Tax Assessment Act 1997 - section 35-10 | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(a).

Reasons for decision: Summary: You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(a) of the ITAA 1997 for special circumstances. The discretion in paragraph 35-55(1)(a) of the ITAA 1997 may be exercised where: · the business activity is affected by special circumstances such that it is unable to satisfy any of the tests required; and · the special circumstances affecting the business activity are outside the control of the business activity. Taxation Ruling TR 2007/6 set out the Commissioners interpretation of the exercise of the Commissioners discretion under paragraph 35-55(1)(a). The following has been extracted from paragraphs 47 to 53 of this Ruling: Although not limited to natural disasters, paragraph 35-55(1)(a) refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity. In your case, your primary production activity was affected by a major flooding event which covered the property with water for almost a week. It is accept that these conditions were outside your control and are 'special circumstances' for the purposes of paragraph 35-55(1)(a) of the ITAA 1997. However, before the Commissioner can exercise the discretion you must be able to show that it was the special circumstances that prevented your activities from meeting one of the tests. Your business activity passed the assessable income test in the 2011-12 financial year. However, due to the flooding event in the region, many farmers were forced to sell their livestock resulting in a drop in prices in the local market. As a result, the assessable income from your activities in the 2012-13 financial year was less than $20,000. The Commissioner is satisfied that your activities would have met one of the four tests if it had not been affected by special circumstances. Therefore, the Commissioner will exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to offset the losses made from your activities against your other assessable income for purposes of calculating your taxable income for the 2012-13 financial year.