Private ruling: Non-commercial losses and the Commissioner's discretion
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
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 primary production activity in your calculation of taxable income for the 2009-10 to 2014-15 financial years? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-55 | 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(s) in question where, but for the special circumstances: · your business activity would have made a tax profit, and · the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. No exhaustive definition of 'special circumstances' is provided in the ITAA 1997. However, the term has received considerable judicial consideration in respect of other legislation. In the case Community Services Health, Minister for v. Chee Keong Thoo (1988) 78 ALR 307; (1988) 8 AAR 245 Burchett J considered 'special circumstances' in the context of the Health Insurance Act 1973 and made the following observation at ALR 324: Those discretions are intended to be applied to a great variety of situations. In such a context, the core of the idea of 'special circumstances' is that there is something unusual or different to take the matter out of the ordinary course... In the case Employment, Education, Training Youth Affairs, Department of v. Barrett (1998) 82 FCR 524; (1998) 52 ALD 499; (1998) 27 AAR 291 'special' was considered in the context of 'special weather conditions' for the purposes of the Austudy Regulations 1990. Tamberlin J observed at FCR 530 that: The word 'special' must be read in context. In normal parlance it signifies that the event or circumstances in question are out of the ordinary or normal course. Tamberlin J went on to say: The AAT observed in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 (which was approved by the Full Court in Beadle v. Director of Social Security ) (1985) 60 ALR 225): An expression such as 'special circumstances' is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special. In your circumstances, over a number of years, you have stated that some animals died as well as various other incidents and circumstances. These incidences, while affecting the profitability of the activity, are not considered to be unusual, uncommon or exceptional in your particular industry and are not considered to be special circumstances as envisaged by paragraph 35-55(1)(a) of the ITAA 1997. Therefore, the Commissioner cannot exercise the discretion for special circumstances in the 2009-10 and 2010-11 financial years. Therefore, you must defer the loss to a future year where the loss can be claimed against a profit from your business activity. As you have stated that your activity will produce a profit in the 2011-12 financial year, the discretion is not necessary. With regard to the 2012-13 to 2014-15 financial years, as a profit is expected in the 2011-12 financial year, it is clear that the circumstances you were relying on will have ceased to have effect. Therefore the discretion cannot be exercised in these years.

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 have stated that you commenced a primary production activity on the relevant date and this ruling has been made accepting this as a fact. | Your activity has not made a profit in any financial year to date. | On average, you have X breeding animals. | The progeny is primarily bred for sale at leading sale venues. | You state that over a number of years, you had a number of incidents involving the animals. | You have provided projections which show that you expect to make a tax profit in the 2011-12 financial year. | You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year.