Private ruling: Non-commercial losses
Published: December 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2001

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 grape growing enterprise in your calculation of taxable income for the 2011-12 financial year? | A1: Yes.


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 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 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 Y prices have been affected by the glut, although these improved a little in 20XX. It is considered that an oversupply of a product is the result of ordinary market fluctuations that affects all businesses within that industry, and is not considered 'special' as it is a circumstance that might be reasonably expected to occur when carrying on a business activity. You advise that your activities in the relevant financial year were affected by significant rain events causing disease problems leading to lower yields and increased spraying costs. These events prevented you from meeting the assessable income test. However, with the trees maturing and given a normal season without the need to purchase additional water or spraying material, you expect to be profitable in the subsequent year and onwards. 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 relevant financial year.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You acquired a X hectare property and commenced a business several years ago. | The property is planted with Y which are sold to a co-operative who process the Y. | Your Y growing activity was previously profitable. | Significant rain events in the relevant financial year restricted yields through disease problems and added to spraying costs. | You expect the activity to satisfy the assessable income test in the subsequent financial year, as it has done previously. | You have requested the Commissioner to exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 of the ITAA 1997 for the 2011-12 financial year. | Your income from sources not associated with the business activity is more than $40,000. Your income for non-commercial loss purposes is less than $250,000.