Private ruling: Non-commercial losses - Commissioner's discretion
Published: May 2013
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

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 farming activity in your calculation of taxable income for the financial year ended 30 June 2010? | A1: Yes.

Relevant facts and circumstances: · Your income for non-commercial loss purposes for the 2009-10 financial year was greater than $250,000. · You jointly acquired a rural property where you commenced a mixed farming and grazing activity. · The property was run down and you set about bringing it up to a standard to enable a profitable enterprise to be conducted. · In the earlier years your primary production activity sustained losses however a profit was made in the 2010-11 financial year. · Since purchasing the property x% of the period was affected by drought. The long term rainfall was received for only two years in the time of ownership. · You made a one-off capital gain in the 2009-10 financial year.

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)(a) | Income Tax Assessment Act 1997 subsection 35-10(2E)

Reasons for decision: Summary: You have not satisfied the income requirement as your relevant income has exceeded $250,000. Therefore the loss from your activity will not be taken into account for the 2009-10 financial year unless the Commissioner exercises the discretion in section 35-55 of the ITAA 1997. To apply the discretion in paragraph 35-55(1)(a) of the ITAA 1997, the Commissioner should be satisfied that the business activity is affected in the relevant year by special circumstances which prevented a profit being made. The information provided confirms that the location of your property was drought affected. Unfavourable weather conditions of drought and below average rainfall were outside your control and therefore it is accepted as special circumstances as this term is used in paragraph 35-55(1)(a) of the ITAA 1997. Because the drought had no impact in the 2010-11 financial year a profit was made. The profit was mainly achieved through an increase in sales of all produce with a slight reduction in expenditure. Therefore had the drought and below average rainfall not occurred in the lead up to and during the 2009-10 financial year the profit gained in the 2010-11 financial year may have been achieved in the 2009-10 financial year. The Commissioner is satisfied that your farming activity would have made a tax profit in the year ended 30 June 2010 had it not been affected by drought and below average rainfall for seven of the nine years since 2002. There are no other discretions, exemptions or exclusions that apply to your situation in relation to the realisation of an abnormal one-off capital gain preventing you from meeting the income requirement.