Private ruling: Non-commercial losses
Published: November 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
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 business activity in the calculation of your taxable income for the 2012-13 financial year to the 2017-18 financial year? | A1: Yes.

Relevant facts and circumstances: You conduct a primary production business in partnership. You meet the income requirement of Division 35 of the ITAA 1997. In the 20XX natural disaster much of your income producing assets were heavily damaged resulting in largely reduced yields. In early 20XX you entered into a contract to replace these assets and paid a deposit. The assets were never delivered and the supplier went into receivership and deregistered with the deposit not recovered. You attempted to secure the assets from different suppliers however they also were affected by the natural disaster and were unable to meet local demand. You have now been able to secure an order due for delivery in early 20YY the new assets will take approximately 3 years to start producing any yield and 5 years to produce full yield. In the 2010-10 and 2011-12 financial years you passed the assessable income test of Division 35 of the ITAA 1997. This shows that if not for the natural disaster you would have satisfied the assessable income test for relevant and future years.

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 financial years under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises the discretion. '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 financial years 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. Consequently the Commissioner will exercise his discretion in the 2012-13 financial year to the 2017-18 financial year.