Private ruling: Non-commercial losses - Commissioner's discretion
Published: June 2012
Ruling period: 1 July 2010 to 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1:  | A1: Yes


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

Reasons for decision: Summary: Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997 will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55(1)(a) of the ITAA 1997 that it would be unreasonable to defer the loss. Paragraph 35-55(1)(a) of the ITAA 1997 provides that the Commissioner can exercise the first arm of the discretion where certain special circumstances apply. Special circumstances in this context are those outside the control of the business operator, including those such as drought, flood, bushfire or some other disaster that have materially affected that activity. It is intended that the Commissioner only exercise this arm of the discretion if one of the tests would have been satisfied but for the special circumstances. The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control and that in the absence of those circumstances it was probable that a taxation profit may have been made from the activity, or one of the four tests passed, for the income year in question. Therefore the Commissioner's discretion under paragraph 35-55(1)(a) has been granted for the 2010-11 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. | 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 2010-11 financial year? Answer: | Relevant facts: You commenced a business of crop farming in the 2009-10 financial year. | You planted a crop of over 100 hectares in the 2010-11 financial year which was to be harvested later in the same financial year and then sold. | You passed the assessable income test in the previous financial year with sales of produce exceeding $20,000. | The farm was operated by you with some assistance from another farmer. | During the financial year your region was affected by a natural disaster which destroyed the whole crop, resulting in you deriving no income from the crop. | But for the disaster, you expected to meet the assessable income test and make a profit. You have provided an estimated profit and loss statement to demonstrate this. | You have provided documentary evidence of the disaster and a Department of Agriculture publication regarding gross margin budgets for your particular crop. | After the devastation of the natural disaster, you subsequently sold the farm. | Your income for non-commercial loss purposes for the 2010-11 financial year was less than $250,000.