Private ruling: Non-commercial losses and the Commissioner’s discretion
Date of advice: 1 September 2017
Published: December 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

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 2016-17 financial year? | A1: Yes.

Relevant facts and circumstances: You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a business which commenced in the XXXX-XX financial year. You submit that you were affected by special circumstances in the XXXX-XX financial year. You have submitted the following evidence to substantiate your claim: ● details of the profits to be made in the future financial year. ● your financial statements. ● documentation showing the issue which affected your region in XXXX. You explain the special circumstances impacted on your business in the following ways: ● you were impacted by a disease over the growing period. ● during the XXXX-XX financial year your region was impacted which effected the growth of the plants. ● as a result you were you were unable to deliver the stock at your normal sale price and were required to sell at a reduced price . You have provided evidence that had the special circumstances not occurred, you would have passed the assessable income test for the XXXX-XX financial year. Further, you also intend to pass the $20,000 assessable income test in the XXXX-XX financial year.

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

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, 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 usually satisfy the income requirement, and special circumstances 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. 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. Accordingly, the Commissioner will exercise his discretion for the XXXX-XX financial year.