Private ruling: Commissioner's discretion - special circumstances
Published: December 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

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 business activity in your calculation of taxable income for the 2010-11 financial year? | A1: 


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

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $xxx,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes was above $xxx,000 in the 2010-11 financial year. The Commissioner's discretion in paragraph 35-55(1)(a) of the ITAA 1997 may be exercised for the financial year where the business activity is affected by special circumstances outside the control of the operators of the business activity. 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. For those individuals who 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 sets out the Commissioner's interpretation on the exercise of the discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 47 to 53 of this ruling: Although not limited to natural disasters, paragraph 35-55(1)(a) of the ITAA 1997 refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity. Ordinary economic, weather or market fluctuations that might reasonably be predicted to affect the business activity would not be considered to be special circumstances. These fluctuations are expected to occur on a regular or recurrent basis when carrying on a business activity and affect all businesses within a particular industry. In your case, your business activity was affected by pest plagues and storm damage in the 20xx-xx financial year. It is accepted that these conditions were outside your control and are 'special circumstances' for the purposes of paragraph 35-55(1)(a) of the ITAA 1997. However, before the Commissioner can exercise the discretion you must be able to show that it was the special circumstances that caused your activities to make a loss. Your actual income and expenditure figures for the 20xx-xx and 20xx-xx financial years show that prior to the special circumstances, your business activity was producing a loss. The increased income projected for the 20xx-xx financial year is as a result of the new property acquired in 20xx and unrelated to the special circumstances. Had your business activity been able to produce the income levels of the 20xx-xx financial year (highest recent income level), it would still have produced a loss. The Commissioner is not satisfied that your activities would have made a profit in the 20xx-xx financial year had it not been affected by these special circumstances. Therefore, the Commissioner is unable to exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(a) of the ITAA 1997 in relation to your activities for the 20xx-xx financial year.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: Your activities are conducted on two farms, one of which was acquired in 2011. | In the current cropping season you expect to produce income of approximately $x,x00,000 from the two properties. | The previous harvest (in the 2010-11 financial year) was affected by pest plagues and storm damage. | Your actual income and expenditure figures for the 20xx-xx financial year show total income of approximately $xxx,000 and expenditure of over $xxx,000. | Your actual income and expenditure figures for the 20xx-x financial year show total income of approximately $xxx,000 and expenditure of over $x,x00,000. | Your income for non-commercial loss purposes in the 20xx-xx financial year was above $xxx,000.