Private ruling: Non-commercial losses - Commissioner's discretion
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2008

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 2009-10 financial year? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You operate a business involving pleasure boats in a river region. Your business commenced in the 2008-09 financial year. You met the assessable income test for the 2008-09 financial year. Severe drought conditions in the area over the last few years resulted in insufficient water for boats, which resulted in many boats leaving the area. As a consequence, income dropped significantly in the 2009-10 financial year. Due to the drought, you were in receipt of an exceptional circumstances payment from Centrelink during much of the 2009-10 year. As the drought is now over and some of the boats are returning, your estimated income from your business for the 2010-11 financial year exceeds $20,000. Your adjusted taxable income for non-commercial loss purposes is less than $250,000 in the 2009-10 financial year.


Reasons for decision: Summary: Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997, will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55 of the ITAA 1997 that it would be unreasonable to defer the loss. Paragraph 35-55(1)(a) of the ITAA 1997 provides that the Commissioner can exercise the first arm of this discretion where certain special circumstances apply. Special circumstances in this context are those outside the control of the business operator, including those such as drought, flood, bushfire or some other natural disaster, that have materially affected that activity. It is intended that the Commissioner only exercise this arm of the discretion if one of the tests would have been satisfied but for the special circumstances. Your business was affected by drought conditions in the 2009-10 financial year and as a result your income from the business dropped significantly as boats were moved to other areas. The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control, namely the drought, and that in the absence of those circumstances it was probable that a taxation profit would have been made from your business activity, or one of the four tests passed, for the financial year in question. Therefore, the Commissioner's discretion under paragraph 35-55(1)(a) has been granted for the 2009-10 financial year. | Detailed Reasoning - Note:: The issue of this ruling of itself does not constitute a decision of the Commissioner under subsection 35-55(1) of the ITAA 1997 that the loss deferral rule in subsection 35-10(2) of the ITAA 1997 does not apply to you for the financial year in question. That decision can only be made in issuing you your assessment, following lodgment of your income tax return for this financial year, being the 2009-10 financial year. You can lodge this return on the basis that the Commissioner is bound to make this decision as set out in this ruling, where the facts set out in the ruling do not differ materially from the actual facts concerning your business activity.

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.