Private ruling: Non-commercial losses
Date of advice: 30 January 2018
Published: June 2018
Ruling period: 30 June 2013
Date scheme commenced: 01 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 activity (the activity) in your calculation of taxable income for the 2012-13 financial year? | A1: Yes

Relevant facts and circumstances: The activity has been running as a cattle business since the early 1900’s, being passed down through family hands. You have been helping run the activity for over 35 years and have been solely running the business since 200X. The activity has expanded over the years to running a significant number of cattle across large acreage. The millennium drought affected the farm from 2001 to 2010. Severe flooding affected the farm in 2010, 2011 and 2012. These events lead to large increases in costs to rebuild fences and stock watering facilities and increased costs to fodder and labour costs. A majority of your land was quarantined for portions of the 2012 and 2013 financial years. These circumstances reduced your ability to sell stock in the 2012-13 financial year. You have also been running an earth moving equipment leasing business for the year in question. You do not satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

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, you do 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 you do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. The relevant discretion may be exercised for the financial 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. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. Consequently the Commissioner will exercise his discretion in the 2012 - 13 financial year.