Private ruling: Non-commercial losses and Commissioner's discretion for special circumstances
Date of advice: 17 August 2017
Published: November 2017
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 18 August 2015

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) 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 2015-16 financial year? | A1: Yes Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. Consequently the Commissioner will exercise his discretion in the 2015-16 financial years. | Q2: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your primary production business activity in your calculation of taxable income for the 2016-17 financial year? | A2: Yes Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. It is also accepted that, but for the special circumstances, you would have made a tax profit, and you have met, or would have met one of the four tests. Consequently the Commissioner will exercise his discretion in the 2016-17 financial year. For more information on non-commercial losses, please visit our website ato.gov.au and enter quick code QC 33774 into the search bar at the top right of the page.

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a business as a sole trader. The business is primarily concerned with crops. You commenced business operations in the 2015-16 financial year. From mid-late 201X to early-mid 201Y the land was prepared for planting. The crops were planted from early-mid 201Y to mid-late 201Y. Harvest of the crops occurred from mid-late 201Y to late 201Y. You have provided information relating to the cultivation, planting and harvesting of the crops. You submit that you were also affected by special circumstances in the 2016-17 financial year. You submit that the special circumstances impacted on your business in the following ways: ● a heatwave scorched the an established crop, resulting in a crop failure ● soil borne diseases impacted crops which also resulted in a crop failure ● you were required to dispose of the disease ridden crops and treat the soil to ensure that the diseases did not impact future crops You have provided a projected profit and loss statement that suggests that had the special circumstances not occurred in the 2016-17 financial year, the business would have been profitable. You intend to make a profit/make $20,000 in assessable in come in the 2017-18 financial year.

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) and | Income Tax Assessment Act 1997 paragraph 35-55(1)(b).