Private ruling: Non-commercial losses - Commissioner's discretion
Published: May 2013
Ruling period: Year ending 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 activity in your calculation of taxable income for the relevant financial year? | A1: Yes.

Relevant facts and circumstances: You carry on a primary production business and you commenced this activity late in 19XX. You have independent evidence that it can take 20 years or more for this product to reach a saleable maturity. You expected to make your first sales in the 20YY financial year. The Department of Primary Industries provides information that the last two summers were unusually wet. This prevented you from tending your product however you were able to conduct some maintenance and were expecting to commence sales in the 20YY calendar year. Unfortunately the summer of the relevant year has been just as wet with long periods of rain that prevented you from spraying and preparing the product for sale. Because the ground has been very wet and saturated the product are unsuitable for sale. The extreme wet weather also caused flooding in parts of the coast and buyers who needed the product for developments had to delay projects to repair infrastructure. You expect to commence selling in the latter part of the relevant calendar year and producing a profit in each of the following years. You do not satisfy the income requirement of subsection 35-10(2E) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 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 relevant financial year.