Private ruling: Non commercial losses
Published: September 2013
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 business activity in your calculation of taxable income for the relevant financial year? | A1: Yes

Relevant facts and circumstances: You are a partner in a partnership. The partnership runs a primary production business. The partnership has made profits over the last few financial years and expects a profit in the subsequent financial year. However the relevant financial year resulted in a loss. The partnership sold most of it's livestock in the prior financial year due to the dry conditions on the property and a lack of available feed and pasture. The business restocked later than expected to allow time for the pasture to recover from the dry conditions. As a result of the later restocking and lack of significant fodder, most of the livestock was not ready for sale during the relevant financial year. More supplementary fodder was purchased in the relevant financial year due to the shortage of pasture which increased the business costs and contributed to the loss for the relevant financial year. You do not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-1 . | Income Tax Assessment Act 1997 Subsection 35-55(1) | Income Tax Assessment Act 1997 Paragraph 35-55(1)(c ). | Income Tax Assessment Act 1997 Subsection 35-10(2E).

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 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 · 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 year of income.