Private ruling: Commissioner's discretion
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

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 farming enterprise in the calculation of your taxable income for the 2009-10 financial year? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1 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) Income Tax Assessment Act 1997 - Subsection 35-10(2E)

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) of the ITAA 1997 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. Taxation Ruling TR 2007/6 set out the Commissioner's interpretation of the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 47 to 53 of this Ruling: Although not limited to natural disasters, paragraph 35-55(1)(a) of the ITAA 1997 refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity. In your case, you moved your business activities interstate and incurred additional expenses as a result. This move was not outside of your control and is not considered to be 'special circumstances' for the purposes of paragraph 35-55(1)(a) of the ITAA 1997. In addition, there is nothing to suggest that this move was the ultimate cause of your business losses in the 2009-10 financial year. Therefore, the Commissioner will not exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(a) of the ITAA 1997 for the 2009-10 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. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You commenced your business activities in 19XX. | In 20XX, you moved your business activities interstate due to drought. | In the last five years your business has not produced income greater than the expenses attributable to it; incurring over $700,000 in losses and producing less than $100,000 in income. | For the past two years, you have had a share farming agreement with a local farmer to crop some of the land. | Your income for non-commercial loss purposes in the 2009-10 financial year was above $250,000.