Private ruling: Commissioner's discretion - special circumstances
Published: March 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

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 the calculation of their taxable income for the year 2010-11 financial year? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 section 35-55 | Income Tax Assessment Act 1997 paragraph 35-55(1)(a) | Income Tax Assessment Act 1997 subsection 35-10(2)

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000. The Commissioner's discretion in paragraph 35-55(1)(a) may be exercised for the financial year where the business activity is affected by special circumstances outside the control of the operators of the business activity. 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. For those individuals who do not satisfy the income requirement, special circumstances are those which have materially affected the business activity, causing it to make a loss. You have provided a crop production report for the 2011 season detailing the affects of abnormal and extreme weather conditions. As a result of these events, the harvest was reduced and the income from sales was greatly reduced resulting in an overall loss for the financial year. These circumstances, in the form of abnormal and extreme weather conditions, were outside your control and, therefore, are accepted as a 'special circumstances' for the purposes of paragraph 35-55(1)(a) of the ITAA 1997. Your primary production activities have made tax profits in past years and produced more than $20,000 in assessable income in the current financial year. The Commissioner is satisfied that your primary production activities would have made a profit in the year ended 30 June 2010 had it not been affected by these weather events. Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(a) of the ITAA 1997 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. | Relevant facts: You have invested in a primary production project. | In the last five years your investment has produced profits in two years and losses in three, not including the current year. | In past years, the activity has been affected by adverse weather conditions including drought and rain events at the time of harvest, affecting the quality of the product. | Your production in the 2010-11 financial year was reduced to around 25% of that achieved in past years. | Your income for non-commercial loss purposes in the 2009-10 financial year was above $250,000.