Private ruling: Non-commercial losses
Date of advice: 8 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 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 in your calculation of taxable income for the 2013 income year? | A1: Yes.


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 income 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 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 do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income year in question where, but for the special circumstances: ● your business activity would have made a tax profit ● the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. Further, it is accepted that: ● but for the special circumstances, you would have made a tax profit ● you have met one of the four tests or would have but for special circumstances. Consequently the Commissioner will exercise his discretion in the 2013 income year.

Relevant facts: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. | You carry on a business of primary production. | You were affected by special circumstances in the 2013 income year, namely significant rainfalls in 2011. | Within your industry there are delays between harvesting and selling the product. | Significant rain events in the 2011 income year caused over cropping, with corresponding reductions in quality and price, and rot, meaning some products weren't harvested. | The failure to produce and over cropping caused a significant loss of potential wholesale revenue in the 2013 income year.