Private ruling: Non-commercial losses and the Commissioner's discretion
Published: September 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 April 2004

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 activity in your calculation of taxable income for the 2012-13 to 2014-15 financial years? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Subparagraph 35-55(1)(a)

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 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(s) 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 will prevent you meeting one of the four tests. Consequently the Commissioner will exercise his discretion in the 2012-13 to 2014-05 financial years.

Relevant facts: The business commenced in April 2004 with the planting of less than 10 hectares of trees. Production began in 200X/200Y producing A litres of product and increasing to B litres in 200Z with the production of product being impacted by drought for a number of years. It was anticipated that C litres of product would have been produced had the flood not occurred. | The flood occurred in March 2012 and covered 50% of the orchard. Approximately 50% of the fruit was sitting in water for about four weeks which is not good for the trees. There was fruit on the trees at the time with a lot of the lower hanging branches covered in fruit hanging in the water which ruined them. | Since the flood occurred you have been cleaning up the debris, repairing damage to fences and cleaning out the drains. The watering system has had to be repaired and realigned, excess water pumped away and weeds sprayed and slashed. | The affected trees have been treated with chemicals to address "root rot" which occurs when the trees have been sitting in water for too long. The trees have had to be pruned right back to get rid of the dead wood and encourage new growth however the "root rot" will hamper the trees ability to produce the same yield of fruit expected of trees of their age for several years.