Private ruling: Non-Commercial Losses - Special Circumstances
Ruling period: Year ended 30 June 2010
Date scheme commenced: 01 July 2009

Ruling: Q1: Will the Commissioner exercise the discretion under paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include losses from your farming business in the calculation of your taxable income for the 2009-10 financial year? Yes


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

Reasons for decision: Detailed Reasoning - Special circumstances: 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 · the exceptions apply, or · the Commissioner exercises his discretion. In your situation, you did not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and the exception did not apply to you. Your business 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 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 year(s) 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. It is also accepted that, but for the special circumstances, you would have made a tax profit Consequently the Commissioner will exercise his discretion in the 2009-10 financial year, therefore you are not required to defer the losses.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You are a partner in a partnership which operates a farming business. | The area where the farm is located has been in drought for many years. | The effects of the drought were felt by low sales and higher expenses. | The partnership made a loss in the 2009-10 financial year. | You failed the income requirement as outlined under subsection 35-10(2E) of the ITAA 1997 in the 2009-10 financial year. | You contend that had there not been a drought the partnership would have made a taxable profit in the 2009-10 financial year.