Private ruling: Non-commercial losses - special circumstances
Published: August 2014
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013.

Ruling: Questions and answers | Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 to allow you to include any losses from your primary production business activity in your calculation of taxable income for several financial years? | 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. The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • The application for private ruling • Further information received. Your income over several financial years was greater than $250,000, therefore you did not satisfy the income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 . You received personal income which totalled greater than $250,000.00 in each of those financial years. You also carry on a business activity which made a loss in those income years. The business activity is primarily concerned with agriculture. You commenced the business activity in the 200X income year. The business activity's stock on hand is substantial. You submit that you were affected by special circumstances in several financial years due to drought conditions. You have submitted the following evidence to substantiate your claim: • Government Agricultural conditions for the relevant years. • Monthly rainfall. • Seasonal Conditions Report. • Budget for the relevant financial years. • Trading Statement. • Profit and Loss Statement. You submit that if it was not for the special circumstances you would have made a profit in the financial years ended 30 June 2010, 2011, 2012, and 2013. Special circumstances impacted on the profitability of your business activity in the following ways: • Increase in health costs. • Increase in cartage expenses. • Increase in agistment costs. • Significant feed expenses. • Forced sales of product to keep the business afloat. You intend to make a profit in the current 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)

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 ( 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 in subsection 35-10(2E) of the ITAA 1997. If you do not satisfy the income requirement special circumstances are those which have materially affected the business activity, causing it to make a loss. Taxation Ruling TR 2007/6, paragraph 13A states; For those individuals the Commissioner's discretion in paragraph 35-55(1)(a) of the ITAA 1997 may be exercised for the income year(s) in question where; • But for the special circumstances, the 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 at least one of the four tests. '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. Having considered your full circumstances, the Commissioner is satisfied that your business activity was affected by special circumstances in respect to drought in several income years which was outside your control prevented you making a profit. 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. Therefore the Commissioner will exercise his discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the relevant income years.

Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not considered the application of Part IVA to the arrangement you asked us to rule on.